History of Stock Market Crashes in India
Learning from the histories of stock market is essential to understand and learn investing in equities.
All You Need to Know About Stock Market Crash in India
The stock market is unpredictable, and one can't ensure success in it always. The sudden rise or crash of the stock market has led investors to gain a high amount of returns on investments or vice versa. Here we are going to discuss some stock market crashes in the history of India that made the investors go through an immense loss. However, many of us may not be very familiar with the term stock market crash. So first, we will develop a basic understanding of it and will learn about the different factors that influence it.
Stock Market crash simply refers to the downfall of the stock prices. We usually use the term market crash term when the loss of market indexes is more than 10%. It results in paper wealth loss at a quicker pace. The major reason behind the stock market crash is abruptly panic selling of stock.
The stock market crash situation can be seen in a wink; however, it causes long-lasting effects on the country's economy and investor life. Here we have listed precisely the major market crashes that remain a nightmare for the investors.
1865: The 1st Market Crash
Many people don't know about it, but the history of the market crash in India is much older. The 1865 market crash is one of the unknown market crashes in the History of India. Later on, it became the foundation event for the establishment of BSE ( Bombay stock exchange) in 1875.
In 1861 beginning of the American civil war led to the increasing demand for cotton. The money made by cotton is pumped into stock to increase stock prices. The bank of Bombay stock with the face value of ₹ 500 reaches the height of 2850. However, the end of the American civil war successively led to a market crash in 1865, lowering the Bank of Bombay stock price to ₹ 87 only.
1982: An Interesting Revenge from Reliance Industries
The 1982 incident wasn't originally termed a market crash. It was a strategic plan of a bear cartel against Reliance share. They were trying to short sell the stocks, and Dhirubhai Ambani took control of the situation and prevented another crash. The bear cartel even succeeded in their initial phase. They brought the Reliance share price from ₹ 131-₹ 121 by holding almost 10-11 lakhs shares of it.
Dhirubhai Ambani realized the situation and holds his shareholding. Reliance friends in the market bought shares worth a total of 8 lakh more shares than the bear cartel. This incident leads to the ultimate closure of BSE for 3 days.
1992: Harshad Mehta Scam
Talking about the scams and Stock market crashes and not speaking of Harshad Mehta won't do justice to this article. The Harshad Mehta scam of 1992 led Sensex to fall by more than 50 percent over one whole year. Harshad Mehta is still called the big bull of the Indian Stock Markets and is one of those prominent figures in the business world over whom a web series has also been made, explaining everything about the year of the scam 1992. He used the loophole in the system so the scam done by him is popularly referred to as Systematic stock fraud.
2008: Black Monday for Stock Market
A series of events followed the stock market crash of 2008, and 21st January was called Black Monday for Investors. A massive drop in Sensex points has been observed, i.e.,of 1408 points, causing a significant loss of capital to market investors. Change in global investment climate because of fear of the US Economy going under recession remained the main reason behind the market crash. Here we are mentioning the events in the precise form:
- 21st January 2008: BSE falls by 1408 points
- 22nd January 2008: Sensex falls again by 875 points
- Trading was suspended at BSE for 1 Hour.
- Sensex continued to fall since September 2008
- 2008 observed the downfall of Sensex from 20465 to 9716 points
2015: Fear About Slowdown in Chinese Economy
After recovering from the 2008 colossal market crash, investors faced it again in 2015. On 24 August 2015, the Sensex fell by 1624 points. The reason behind the market crash of 2015 includes:
1) Devaluation of Yuan: It creates a downfall in the rate of the currency
2) Rapid selling & buying of stocks
3) Fear of slowdown in the Chinese economy
2016: Demonetization & Market Crash
The stock market didn't recover and continued to fall in the past 4 months. On 16 February 2016, BSE observed a total fall of 26% in stock, and on 9 November 2016 market crashed, which led to panic selling of stocks. The main reason behind this market crash was global weakness and global factors like natural calamities and exchange rate. However, it is said that Demonetization driven by the Modi Government added more fuel to it.
2020: Worst Weekly Fall
The reason behind the 2020 market crash was quite evident. The increase in the global tension due to the coronavirus pandemic and closure of the market at the worldwide level were responsible for this market crash.
Recently, we have observed the downfall of the Sensex by about 3% because of rising tensions between Russia and the West over Ukraine. That is not just the first time Sensex or stock markets are witnessing dramatic and drastic changes due to the world's ongoing situation and politics. In the past, there were frequent crashes reported for many reasons.
Therefore, those interested in investing in stock markets should think wisely and adopt a long-term stock exchange investment strategy or invest in stable asset classes such as digital gold which are not extremely volatile.
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