History of Stock Market Crashes

Quoting Warren Buffet, “Risk comes from not knowing what you are doing”, perfectly depicts the share market crash and behavior of the stock market. Stock market crashes have occurred over the years for various reasons, impacting millions of lives. However, the spirit of traders and investors has always fought against adversity. To understand better, let us time travel to the past and learn more about stock market crashes over the years. Keep reading!

History of stock market crashes in India

May 1865 

In 1865, the first-ever stock market crash happened in India. The stock market crash occurred before the Bombay Stock Exchange was founded at the intersection of Meadows Street and Rampart Row. The increased demand for cotton was due to the end of the American Civil War. Cotton, a vital export for Indian companies, contributed to the unrest. After the war, the demand for cotton decreased abruptly resulting in the sudden price drop. With this decline, the stock prices fell and investors in cotton-related companies lost their money. This led to establishing the interconnectedness of financial markets, highlighting the significant impact of global events impacting India’s economy. India began its financial journey, navigating both prosperous and challenging times, before establishing an organized stock exchange.

 1982 - Friends of Reliance

In 1982, Reliance Industries faced a unique crisis when the value of the shares fell from ₹131 to ₹121. By engaging in a large short-selling operation of nearly 1.1 million shares, a bear cartel from Kolkata posed a serious threat to the market. Acting upon the situation, Dhirubhai Ambani addresses the situation by rallying the “Friends of Reliance.” During the settlement period, the group intentionally bought shares to counteract the cartel's impact. Ambani took action by stating that he wouldn’t allow the stock market to reopen until all outstanding deals were cleared. His unwavering determination led to an extraordinary three-day shutdown. This shutdown effectively protected small investors from possible losses, showcasing the power of influential figures in maintaining market stability. Ambani’s action in 1982 displayed his commitment to safeguarding the investors and the stock market.  

April 1992 - Harshad Mehta Scam

Popularly known as the Big Bull of Indian stock markets, Harshad Mehta came to light with a ₹5000-crore scam leading to a market fall. This scam impacts millions of investors leading to losing faith in the Indian stock market. The market lost nearly 40% of its combined market value. Millions of people lost their life savings. Aftermath, to promote the interest of investors, the Indian government formed new laws and committees.

• On 29th April 1992, the Sensex fell by 570 points or 12.77%, and investors withdrew over ₹35 billion.

March 2008 - US Financial Crisis

The Indian Market experienced the biggest market crash ever. This market crash occurred due to the U.S. financial crisis which is considered the worst since the Great Depression. This financial crisis was a fallout of the housing bubble in the US. It caused all global markets to fall sharply even though it started in the US.

• The Sensex dropped by 950 points (6%), ending below 15,000.
• Between 2008 - 2009, the Indian market lost 50% of its value from the highs.

November 2016 - Demonetization and US Election Trends 

The sudden announcement of demonetization by the Indian government on 9th November to stop the black money. The banning of 500 and 1000 rupee notes led to panic selling in the stock market. Moreover, the reports from the US indicated that Hillary Clinton was falling behind Donald Trump's demotivated investors as Hillary Clinton was popular with the investors.

• The demonetization announcement led to the Sensex falling 1,688 points or 6.12%, while NIFTY crashed by more than 540 points or 6.33%. 
• The shares of conglomerates like Cipla, Adani Ports, HDFC Bank Ltd, ONGC, Hero MotoCorp, M&M, Bharti Airtel, Bajaj Auto, ICICI Bank, Sun Pharma, fell by over 5.50 points each.
• Most real estate majors like Godrej Properties, DLF, Unitech, Indiabulls Real Estate, Sobha Developers, and HDIL fell by 15%.    
• Globally, crude oil prices fell below 45 levels, dropping by 2.65%.

June 2015 to June 2016 - Yuan Devaluation and Brexit

From June 2015 to June 2016 can be termed as one of the worst market crashes in India and the world.

• On 24th August 2015, Sensex fell 1624 points dropping 5.94% and wiping out nearly ₹7 lakh crore from the Indian market.
• Sensex had shed over 26% during April 2015 and February 2016.

The negative GDP news from China, the petroleum price fall, the devaluation of the Yuan, and the Greek debt default were major reasons for the year-long sell-off. The bond yield spiked amidst the Brexit issue.

March 2020 – COVID

The COVID-19 outbreak led to a pandemic and lockdowns all around the world leading to a huge market crash in India and the global market.

• The Sensex dropped from 42,273 to 28,288 in one week, from the day the World Health Organization (WHO) declared the virus as a pandemic.
• Investors became poorer by ₹13.88 trillion.
• On 23rd March, the Sensex shed off over 13% or 3,935 points, and the NIFTY fell by 13% or 1,135 points.
• The VIX or volatility index rose to 71.56, a jump of 6.64%.
• The 2,401 stocks regularly traded on the BSE, 2,036 stocks declined, and 233 advanced due to negative market sentiments.
• Since the day the Indian government declared a nationwide lockdown almost all major large-cap stocks dropped over 15%.

Conclusion
The stock market can be impacted by various reasons such as government policy decisions, political instability, banking crises, health concerns, broker cartels, and wars. While these crashes are inherent to stock markets, recoveries have also been consistent. It is important to be vigilant about these events and have a brief understanding. This can help you plan a long-term stock investment strategy.