History of India's Stock Market Crashes
Travelling across India's financial history reveals an engaging story of successes and pullbacks, particularly in the unstable world of stock market crashes. These historical events—well-known and lost to time—showcase the country's flexibility and resiliency in difficult economic times. The first-ever market collapse in India occurred in 1865 due to the effect of COVID-19 on the stock market. By exploring these historical outlines, we can reveal the stories—both known and undiscovered—that have influenced the development of the Indian stock market, providing investors with valuable insights for the present as well as guidance for the future.
India’s First Ever Market Crisis (1865)
India's first market crisis occurred in 1865, laying the groundwork for the nation's financial history. This incident happened before the Bombay Stock Exchange was founded at the intersection of Meadows Street and Rampart Row. The end of the American Civil War, which increased demand for cotton—a crucial export for Indian companies—catalysed the unrest. The demand for cotton abruptly decreased after the war, resulting in a steep price drop. Stock prices crashed as a result of this decline because investors in cotton-related firms lost money. Crucially, this early catastrophe laid the foundation for the interconnectedness of financial markets by underscoring the significant influence of world events on India's economy. Global economic dynamics had a considerable impact during the 19th century. Before establishing organised stock exchanges, India began its financial journey, experiencing both prosperous and challenging periods.
Birth of the Bombay Stock Exchange (1875)
A significant turning point in the financial history of India occurred in 1875, when the Bombay Stock Exchange was founded. This began Asia's first organised stock market, building on the move to Dalal Street in 1874. The Bombay Stock Exchange functioned as the foundation of the Indian financial system since it provided people with a regulated and controlled platform for stock trading. This innovation simplified stock transactions and paved the way for a more developed financial system that benefited future generations. The creation of the Bombay Stock Exchange provided a starting point for India’s financial markets' evolution, leading to more organised and controlled financial and economic structures.
The Opposition of Bear Cartels by Dhirubhai Ambani (1982)
Reliance Industries had a unique crisis in 1982 when the value of its shares fell from ₹131 to ₹121. A bear Cartel from Kolakata seriously threatened the market's stability by participating in a vast short-selling operation of almost 11 lakh shares. Dhirubhai Ambani took care of the problem in a fantastic move by enlisting the help of the "Friends of Reliance." To offset the effects of the bear cartel, this alliance purposefully bought shares during the settlement period. Ambani demonstrated his unwavering stance by refusing to allow the stock market to reopen until the outstanding deals were cleared. This unwavering determination resulted in an extraordinary three-day shutdown, which successfully shielded small investors from possible losses and demonstrated the significant influence of prominent individuals in upholding market integrity. His actions in 1982 proved that Dhirubhai Ambani would go to any lengths to protect the stability of stock markets and investors.
Harshad Mehta Controversy (1992)
The said Harshad Mehta, who was nicknamed Big Bull in 1992, had organised a master plan when the Indian stock market crashed, which led to more than fifty percent deterioration of Sensex within one year. Mehta’s strategy consisted of manipulating the share prices through buy-and-sell processes, in which he bought and sold ACC Limited at Rs. 200 to Rs. 9000 within a few months, draining more than Rs. 1000 crore from banks. When the scam unravelled, the Sensex nosedived by 2000 points to 2500, initiating a two-year bear market. This triggered a bear market that lasted two years when the scam fell apart as the Sensex plummeted from 200 points to 150. In May 2014, the Sensex suffered a devastating one-day crash of 565 points due to political surprise and fear about reforms; UBS foreign investors unloaded stocks owing to the uncertain situation.
2008 Financial Crisis:
In 2008, the financial crisis significantly affected global economies, as evidenced by a sharp decrease in the Sensex. In the face of a global investor confidence shift induced by US recession fears, declining interest rates and commodity market volatility coupled with Foreign Institutional Investors’ selling out of shares to Hedger Funds sent Sensex downward on the Black Monday event just a day after January 21. The year ended with the Sensex falling from 20,465 to 9716 points. The Sensex did not return to the 20,00 mark until September next year.
2015 Chinese Economic Slowdown:
On the next day, August 24 of that year, the Sensex plunged by another 1624 points. The catalyst was fears over a slowdown of the Chinese economy after the depreciation of the Yuan.
Along with a bad Indian rainy season and bad company earnings, this made the market drop even worse.
2016 Double Whammy:
The Sensex saw a 26% drop by February as global economic challenges continued into 2017. High NPAs also hit Indian markets in the banking sector and caused global economic uncertainty. The demonetisation drive escalated market turbulence in November of 2016, which saw the Sensex drop by about six percent, similar to other markets for the Asian economy.
COVID-19 Pandemic (2020)
In 2020, the global health disaster from the COVID-19 pandemic shook financial markets worldwide, including those in India. In early 2020, the stock market crash in India led to a sharp drop in share prices as investors froze due to fear and uncertainty.
Key Takeaways from India's History of Stock Market Crashes
#1. Regulatory Reforms: Increasing Monitoring and Implementation
The need for tighter regulatory supervision has emerged as a common element in India's stock market crashes. A fresh focus on regulatory changes resulted from the Harshad Mehta incident, which revealed regulatory gaps. Time has also changed regulators such as the Securities and Exchange Board of India (SEBI) This includes regulating more rigorous rules and control systems. The regular amendments to legislation grant flexibility in the adaptation of a market situation and create openness and confidence among investors.
#2. Managing Risk and Diversification to Create Robust Portfolios
With the History of Stock Market Crashes in India, investors are now aware of diversity's benefits in combating market volatility. The emphasis on portfolio diversification that involves multiple sectors and asset classes aims to diminish risks associated with industry-related challenges and economic trends. Furthermore, risk management techniques—like placing stop-loss orders and routinely assessing investment portfolios—have become essential components of investor behaviour.
#3. Economic Policies: Juggling Stability with Reforms
The Demonetization incident highlighted how abrupt policy changes might affect the stock market. Investors discovered that while structural changes are necessary for the economy's long-term health, policies should be implemented gradually to give markets and companies time to adjust. As this article highlights, officials must communicate clearly to reduce uncertainty and market disruption.
#4. International Dynamics and Global Interconnectedness
The global financial markets have been most interdependent since the outbreak of COVID-19 and during the Global Financial Crisis. Investors learned how significant it is to stay informed about the global movements of economic patterns and geopolitical developments. Therefore, it is necessary to distribute assets among different sectors and regions in order to avoid losses caused by external factors.
#5. Being Flexible in Unprecedented Circumstances: Addressing the COVID-19 Epidemic
The COVID-19 outbreak made resilience and adaptation visible. Among investors, reevaluating their portfolios in response to dynamic market situatio ns allowed them to face uncertainty. This crisis was a reminder of the importance of having solid long-term financial strategies that can respond to unforeseen events and still provide comfort in difficult times.
Conclusion
To sum up, the stock market crashes in India have been invaluable teaching moments. Every crisis has shaped a more robust financial sector, from regulatory measures guaranteeing market integrity to adopting technical developments for more intelligent trading. It becomes easier for investors to navigate uncertainty when they have learned lessons on handling risks, managing diversity and properly administering economic policy. The ability to adapt during unexpected events, such as the COVID-19 pandemic, is a sign of shared commitment towards learning and development. These key insights from this article emphasize the importance of awareness, agility and foresight in a dynamic environment as the Indian financial system is evolving.