Quote, emphasis [and implications] added:
Question: Is it wrong [for the teacher] to say "you are wrong"? If yes, how do we [the teacher] correct mistakes in a way that is not demotivating? My policy has been, [teachers] give elaborate feedback... But, feedback often meant I point out their mistakes. Of course, I [the teacher] was also generous with praise. How can I [the teacher] give feedback that is not demotivating?
Perhaps your students responded productively to elaborate feedback, but most research and casual empiricism say they don't; students overwhelmingly pay attention to grades. [One can like or dislike this, but I see almost no room to debate its veracity.] In this case, they interpreted your feedback as "I'm going to get a low grade whether or not I try hard, so why put time into this class?"
EDIT: OP said that many students received good grades for the presentations and may have inferred that effort was not necessary. Overall, the comments and grading strike me as sending an inconsistent message.
More importantly, though, this quote is all about the teacher doing a lot of mathematical thinking while the students - presenters and audience - doing very little.
I humbly suggest that what you're really looking for is:
How do I get students to think and persevere mathematically?
How can a student learn to assess the quality of their own math and that of others?
How can I give students better odds/opportunities to shine when presenting in front of the class?
What motivates students to respond productively to feedback? [Hint: GRADES]
The types of comments from @FoiledIt24 and @Daniel R. Collins are quite good for dealing with richer and advanced content. That's definitely part of the solution.
Here, I suggest an approach that can tackle all four of those questions at once: assessment as learning. [This link is OK. If anybody has a better link please paste it in the comments!]
You could implement assessment as learning as follows:
Discuss the learning outcomes with the students and create criteria for the various concepts and skills to master. Create one big rubric for the course plus smaller rubrics for other critical learning outcomes. Involve students in this as much as possible. Ideally, within a week of the course and/or unit(s) starting, you can say "Here are the scoreboards we will use to track grades and learning." This is a large but worthy investment because without knowing goals and criteria of assessment, nothing below will work. Also, their involvement in creating rubrics will increase intrinsic motivation.
Provide examples of varying quality and have students assess them according to the criteria you've established together, then have students slap an A+ or C- or some other letter grade on them. Discuss as a class and ensure everyone knows the difference between A-quality work vs B-quality work vs C-quality work etc. These varying examples are arguably the single best place to tackle the most common mistakes and misconceptions. You might say something like: "The fictitious students Sue, Al, Bob, and Zach have all attempted their own proofs of the associativity of matrix multiplication. Pretend to be the teacher and mark their work according to the rubric we agreed upon earlier. Give each student specific suggestions. End by giving each a letter grade and prepare to justify it all to other members of your group. Try to reach a consensus with them, then we'll discuss it as a class." And you can do so, knowing it's a safe place to share candid assessments, whether positive or negative.
As students work on proofs and problems on their own, give them feedback in the form of:
Reminding them of the criteria. "This is a word problem and one of the criteria is correct interpretation of numbers in context." This is the best type of assistance.
"Keep thinking" questions and comments such as those mentioned elsewhere in this thread
Descriptive praise [EDIT: I realize I gave this short thrift originally. I should have said that among pedagogical techniques that are easy to implement, descriptive praise is IMHO the most powerful. Other suggestions in this post are much harder.]
Hints that reference success but require deep thinking to utilize. "I see you're stuck on exercise 38, but you aced last week's problem set and its last problem is quite relevant here."
Highlighting specific progress and excellence in front of the class and celebrating it. Even as little as a short applause or a cheer or giving them a token prize. "Last week, Joe was unhappy with his proof by induction. This week his induction proof got an A- and the grand prize of a $0.25 chocolate bar. Look at both proofs and tell me what improvements he made. Reference the criteria we discussed earlier."
As students become more proficient in assessing their own work, you can start calling on them to present in front of the class. "Who has thoughts on this they'd like to share?" Or, more privately, you can speak to one student and say "Hey, listen, your work here is really elegant even though it's not quite complete. I know you don't like performing, but can I share a screenshot of that with the class?" After this, have the class discuss in terms of the pre-established criteria what makes these such shining examples. When they're done commenting, as the teacher, say "I'd give this a B+. Not bad for 5 minutes work! Here's a similar problem. Now, everyone, gimme some A+ quality work!"
Have students write in PENCIL a practice midterm as if it were the real thing, but do NOT count it for grades. Then, have them mark their own practice midterm in BRIGHT RED PEN, you guessed it, according to the criteria. (They might need a solution key, too.) Then, still in RED, each student writes a letter grade at the top of their test along with a bunch of specific comments to themselves on how to improve for the real midterm. Another student then approves the grade and comments, then submits everything to you and you give them written feedback on the whole thing - but mainly the RED stuff - ideally at least a few days before the real midterm. Trust me - they will respond productively to this feedback!
I hope this provides some useful ideas on how to ensure assessment and feedback are productive and motivating. It really just boils down to clarifying expectations, building on success, aligning incentives and feedback, and profound involvement of students.