A few examples from India, and abroad will signify that market madness is veering towards a frenzied peak. According to the New York magazine, recently the CEO of Nvidia, the premier AI stock, was photographed eating at a Korean-fried-chicken-restaurant. For no rhyme or reason, the shares of unrelated Korean-fried-chicken firms jumped up to 30 per cent. For many investors, the rise was rational and logical, and justifiable. After all, the head of one of the highest valued firms had chosen this kind of a restaurant. What could be a better testimony than this for such eateries.
Let us venture into the crazy world of cryptos. The US President Donald Trump has put his stamp of approval on the virtual currencies. His family is riding the wave. So, when perfectly legitimate tech businesses became involved in mining, and collecting cryptos, leaving aside their earlier operations, it seemed normal for their stock prices to zoom. After all, cryptos was the new fad, and despite the recent fall in bitcoin, the future was full of untapped potential. It was natural for the shares of crypto firms to go up. Trump would never allow the market to slump.
In India, we witness a madness in IPOs (Initial Public Offerings). An issue, which was oversubscribed several times, and within hours, lists in a listless fashion, and shows a minimal increase over the next few days. Another one, which found it difficult to garner investors, and managed subscription on the last day, showed tremendous gains within a few days. It is inexplicable that one finds buyers before the IPO, and sellers later. The other is shunned initially, and attracts buyers later. The atmosphere is topsy-turvy. Nothing is the way it seems, or needs to be. Everything seems random.
When it comes to the secondary market, Indian stocks show instant volatility. Some stocks go up by 4-5 per cent within a day, and slump by similar margins in the same timeframe. This happens so regularly that even the experts are stumped, and do not know how to predict the movements. Penny and micro stocks show gains of several thousand percentage points within months. There are stories of investors, who made millions within weeks. Retail investors jump into derivatives without understanding the products. They opt for algo-trading without knowing what it means. All that they care for is that they need to get into stocks one way or the other.
These are some of the signs of the shape of things to come. Recently, The Economist magazine highlighted the seven deadly sins in the American stock markets. While many of them may seem unique to the country, there are a few that are applicable to the Indian scenario. One of them is “avaricious fraud.” The magazine states that every bullish market hides a fraud, which is unearthed after the correction begins. Two trends are useful. The first is the signs of wobbly accounting practices. The second is the Government’s apathy towards what is happening in the stock markets.
In India, the stock market regulator has gone in a tizzy to highlight the problem areas. IPOs may be overvalued but it has no role to play. Mutual funds may be overly enthusiastic, as they are flush with funds, especially from the retail investors, but the commissions need to be reduced. Investors need to be aware of online crimes. The best way to tackle IPO listing manipulations may be to regularise grey market premiums, but for a limited period between allotment and listing. While it is aggressive to deal with small cases, it is slow to go after the big fish, and whales, as highlighted by a court.
As in the US, where large firms are shacking up with the Government, the same trend is visible in India. In America, Uncle Sam has minority holdings in US Steel, Intel, and mining firms. “OpenAI’s finance chief recently suggested that the Government provide a ‘backstop’ for her industry’s data-centre borrowing binge, before walking back the comment,” states the magazine. In India, charges of crony capitalism erupt time and again. Large firms and groups seem to be involved in such deals. Official support helps firms to grow at a frenetic pace, and money is never in short supply.
Of course, valuations have hit the roof. The value of America’s listed firms, states the magazine, relative to the size of the economy is the highest it has ever been. However, critics contend that the prices are sober compared to the tech boom in 2000. In India, the valuations seem crazed, which explains the recent tempering in stock prices. Yet, experts feel that future potential earnings justify them. The Indian economy is ready for a reset. The macros are strong, and the micros will be in place within no time. In effect, Indian equities, which remained unstable, will rock-and-roll in 2026.
However, “the makings of a bubble often become clear well before it pops. Alan Greenspan warned of ‘irrational exuberance’ in 1997, some four years before the next crash came.” Everyone, or most, knew that the late 1980s would result in a crash, but no one knew when. The same is true of the mortgage manipulations in the 2000s. Some of the signs are here. But the optimism remains.