5 Biggest Stock Market Crashes in Indian History And Their Causes

Introduction

The stock market is prone to fluctuations. The mechanism of the stock market makes volatility a common trait. Therefore, it is necessary to distinguish the regular volatility from a market crash to avoid panic and hasty decisions.

An abrupt, sharp drop in stock prices across a large portion of the market is known as a stock market crash. The primary difference between a market crash and a regular downturn lies in its magnitude and pace.

This blog explores the question- Why are Indian stocks crashing to understand the anatomy of a crash. It also explores what was the biggest drop in stock market history and other significant downturns. 

The Trump Tariff Shockwave: A New Risk for Global Markets? 

On 20 January 2025, Trump signed an executive order instructing the cabinet to review tariffs¹. Tariff refers to the duty or tax levied by a country on its imports. Following the announcement, multiple stock markets all over the world faced a downturn². The Sensex fell 2.9% on 7 April 2025³.

Intending to reduce trade deficits, Trump announced heavy tariffs on more than 180 countries. The US is one of the most important markets for most countries. Therefore, the imposition of heavy tariffs on exports to the US would mean poor performance of local businesses.

As of April 2025, the table below shows the tariffs applicable to different countries.

NOTE: The tariff for most countries, including India, is delayed till 9th July⁴. 

After the tariffs were announced on 2nd April, the market experienced a downturn. On Monday, April 7, the NSE Nifty and the BSE Sensex both fell 3% during trading⁵. The Nifty 50 ended the day at 22,161.60, down 742.85 points, or 3.24%. The Sensex fell 2226.79 points, or 2.95%, to close at 73,137.90. Investors lost INR 14 lakh crore as a result of this downturn. 

However, India was the first country to recover from this global downturn⁵. 15th April, when the markets returned to where it was before the tariffs (i.e. 2nd April). But the situation remains fluid. Markets can react sharply to any new developments. 

Although the initial reaction was severe, the delayed tariff rollout prevented a deeper sell-off. The US is a major market for most countries, the tariffs might be detrimental to the market. 

In such a scenario, a look at the top stock market crashes in India can help gauge market dynamics and take precautionary actions.

5 Biggest Stock Market Crashes In India

1. COVID-19 Pandemic Crash (2020)

On 23rd March 2020, the Sensex experienced a 10% lower circuit, triggered by the pandemic and other economic events. 

To understand how much the market fell in COVID, it’s important to look at the broader context. The pandemic-led shock, combined with the Yes Bank crisis, which caused a precipitous drop in banking equities and a weakening of investor confidence, made this disaster much worse. 

As a result, the Sensex and Nifty low in 2020 was severe. It fell more than 13%, wiping off an INR 13.95 lakh crore in market value. When the Sensex struck the 10% lower circuit, which happened twice in ten days, the fear was so severe that trading had to be stopped barely forty-five minutes into the day.

2. Demonetisation (2016)

The period between 2015 and 2016 was challenging for the Indian stock market. By February 2016, the Sensex had dropped by 26% compared to the previous eleven months, mainly due to increasing non-performing assets (NPAs) and global economic weakness. 

Later in the year, demonetisation, announced on November 8, 2016, led to widespread concern about a cash crunch, resulting in frantic selling of stocks. The next day, the market hit significantly, with the Sensex and Nifty 50 plunging by over 6% in four days. Only those with long-term strategies were better equipped to weather the storm.

3. Yuan Devaluation And Brexit (2015)

In 2015 two major international events caused a stock market crash in India. The events were the Yuvan Devaluation and Brexit. It led to a Sensex fall of 6% on 24 August 2015.

China’s devaluation of the Yuan to boost exports and Brexit caused uncertainty among investors. Brexit is a phenomenon that marked the exit of Britain from the European Union. Both these occurrences fueled a crash of the Indian stock market. The fall was also brought on by Greece's default on a €1.6 billion loan to the International Monetary Fund and declining oil prices.

The market capitalisation lost INR 7 lakh crore as the Sensex plummeted by almost 6%. Nifty 50 fell by 181.85%⁶. The need to keep an eye on international markets and diversifying across securities and regions was highlighted by this crisis.

4. US Financial Crisis (2008)

The housing bubble in the US led to a subprime mortgage crisis. This triggered a Sensex fall of 7.4% in India on 21 January 2008.

The housing bubble refers to a sudden rise and subsequent collapse of housing prices in the US. Multiple creditors missed their mortgage payments, resulting in economic depression. The global market, including India, faced the heat of this crisis.

The Sensex fell 1,408 points on January 21. Investors with international mutual fund investments were impacted further. The Sensex had a 50% decline in just 12 months, from its peak of 20,645 to 9,716 at the end of 2008.

5. Harshad Mehta Scam (1992)

Harshad Mehta, a stockbroker, made enormous profits through an artificial bull run. When prominent journalist Sucheta Dalal exposed this scam on 13 April 1992, the Sensex fell by more than 12.7%.

Harshad Mehta orchestrated a scam utilising loopholes in the banking system of the country. He took out bank funds fraudulently through Bank Receipts and created artificial inflation in certain stocks. For example, he pushed the share price of Associated Cement Company from INR 200 to INR 9,000. 

The Sensex fell 570 points. A steep decline of almost 13% occurred. Investors lost almost INR 4,000 crore as a result of the exposé. Significant decline in the Sensex of more than 50% in a single year. 

Single-Day Crashes In Indian Market History

The impact of a capital market crash might continue over a period of time, but certain trading days stand out for their intensity. Such moments often trigger broader uncertainty and signal deeper distress. Such peaks often mark the onset of the crash. 

To understand why the market is falling continuously in India, it's helpful to examine the most extreme single-day drops recorded in recent times⁷. 

Source: Financial Express⁸

The following section captures some of the most notable single-session declines, excluding those previously covered:

1. Election Outcome Shocks (2004 And 2024)

On 17 May 2004, the Sensex fell 11.1% as election results showed a surprise result and sparking fears of policy reversals. Two decades later, on 4 June 2024, the Sensex dropped 4,390 points after early trends signalled a narrower majority for the ruling alliance⁹.

Both declines were driven by unexpected political outcomes. Uncertainty over economic continuity led to panic selling. Investors reacted sharply to the shift in perceived policy stability, causing temporary fall off in market confidence and value.

2. Chinese Stock Market Turbulence

On 24 August 2015, the Sensex dropped 5.94% following a steep sell-off led by developments in the Chinese economy.

The Shanghai Composite slid nearly 8% as investor confidence weakened amid concerns over slowing growth and uncertainty around regulatory decisions. Adding to the unease, a $547 billion pension reserve remained inactive, raising alarms about the absence of liquidity intervention.

The ripple effect was felt in India. Sensex lost 1,624 points, with nearly INR 7 lakh crore in wealth erased, reflecting how interconnected global events can deeply affect domestic investor sentiment.

3. Ketan Parekh Scam Crash

On 2 March 2001, the Sensex fell by 176 points, registering a single-day decline of 4.13% amid growing investor concern. The immediate cause was the exposure of price rigging operations by broker Ketan Parekh, who had manipulated stock prices using borrowed capital from banks and corporates. 

Markets were already under pressure from the dot-com crash and the aftermath of the Gujarat earthquake, further unsettling the investor confidence.

Why Do Stock Markets Crash Happen?

Several variables combine to produce a volatile market and economic environment. It causes stock values to drop abruptly. The main causes are listed below:

• Extended bull markets and overenthusiasm: Long stretches of increasing stock prices cause overenthusiasm among investors. It pushes prices beyond their long-term norms. This phenomenon is frequently followed by crashes.
• Leverage: When investors take out substantial debts to purchase stocks, they increase their profits during booms but are obliged to sell during downturns, which can lead to a market crash.
• Significant economic or political events: Historic occurrences in this globalised world trigger stock market crashes. For instance, the housing crisis in the US led to significant market collapses globally, including in India.
• Speculation: The Harshad Mehta scam and the subsequent crash is a prime example of how speculative or fraudulent behaviour can cause market crashes.
• Market dynamics: Prices plummet as supply outpaces demand for equities, which can occasionally result in bear markets and recessions as the economy slows down.

Best Ways To Protect Your Portfolio During A Stock Market Crash

Here are some tips for investors to avoid significant losses during a stock market crash:

1. Diversification: Spread investments across different sectors, asset classes, and regions to mitigate losses arising due to one class by offsetting with the profits from other classes.

2. Explore Non-Market Linked Investment Options: Allocate some of your funds to non-market linked investment options like corporate bonds, securitised debt instruments (SDIs), and fractional commercial real estate (CRE) that offer fixed, predictable returns irrespective of the market volatility.

3. Regular Monitoring And Rebalancing: Keep an eye on your portfolio and adjust it according to changing market conditions.

4. Take Advantage Of Cost Averaging: Invest a fixed amount periodically to average out prices and reduce the impact of market volatility. A typical example of this is SIPs. 

Protect your portfolio against a stock market crash.

Next Indian Stock Market Crash Predictions

Predicting the next stock market involves analyzing various economic indicators and expert opinions. Factors such as excessive speculation, geopolitical tensions, rising inflation, and declining economic indicators can signal potential downturns.

Investors should monitor key indicators, including GDP trends, employment rates, and market volatility, to make informed decisions. Diversifying portfolios with bonds and fixed-income securities, and maintaining a long-term investment perspective, can help mitigate risks associated with potential market instability

Conclusion

Understanding stock market crashes is crucial for investors. While market crashes can be overwhelming, it is essential not to let fear dictate investment decisions. Diversification and prudent asset allocation, including non-market-linked investment options, can help investors navigate turbulent market conditions and achieve their financial goals.

At Grip Invest, you can explore fixed, high-yielding, non-market-linked investments to protect you from market volatility. 

Frequently Asked Questions On Biggest Stock Market Crashes In India

1. When was the last time the stock market crashed?

The most recent stock market crash happened against the backdrop of the COVID-19 crisis. The Sensex and Nifty low in 2020 was severe. It fell more than 13%, wiping off an incredible INR 13.95 lakh crore in market value. The Trump tariffs have also created significant downturns in the Indian market. However, India was also the first country to mitigate their losses.

2. What should I do during a market crash?

Unpredictability and fluctuation are the characteristic traits of the stock market. However, fluctuations ease over time. Patience is key to mitigating long-term losses. Investors should avoid making hasty decisions. Moreover, optimum diversification can act as a precautionary measure. Regular monitoring can also help.

3. Can we predict a market crash?

The ability to predict impending market volatility requires years of experience. To measure market changes, sophisticated technological techniques and algorithms are employed. 

It is crucial to keep in mind that predicting is rarely the basis for the best investment. Studying the history of past crashes and downturns, along with optimum diversification, can help investors.

4. When will the Indian market recover?

Both the BSE Sensex and the NSE Nifty had a 3% decline in trade on Monday, April 7. The Nifty 50 dropped 742.85 points, or 3.24%, to close the day at 22,161.60. The Sensex closed at 73,137.90, down 2226.79 points, or 2.95%. 

But according to Bloomberg, India was the first nation to bounce back from this global crisis. On April 2, the Nifty 50 saw a 2.4% increase.

References:

1. Tax Foundation, accessed from: https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

2. The Hindu Business Line, accessed from: https://www.thehindubusinessline.com/markets/stock-market-highlights-7-april-2025/article69419404.ece#:~:text=Sensex%2C%20Nifty%20updates%20April%207,Trump%20administration's%20intensifying%20tariff%20offensive

3. Livemint, accessed from: https://www.livemint.com/market/stock-market-news/rs-19-lakh-crore-wiped-off-from-indian-stock-market-as-trump-tariffs-unleash-economic-nuclear-war-11744000366679.html

4. Whitehouse, accessed from: https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/

5. Business Standard, accessed from: https://www.business-standard.com/markets/news/india-becomes-first-major-market-to-recover-losses-from-april-2-tariffs-125041500567_1.html

6. Business Today, accessed from: https://www.businesstoday.in/markets/stocks/story/bse-sensex-cnx-nifty-on-june-24-trade-brexit-fears-61113-2016-06-24

7. Livemint, accessed from: https://www.livemint.com/market/stock-market-news/harshad-mehta-scam-covid-to-black-monday-top-5-biggest-stock-market-crashes-in-india-s-history-11743999859421.html

8. Financial Express, accessed from: https://www.financialexpress.com/market/bse-sensex-nse-nifty-china-market-today-stock-market-august-24-2015/124542/

9. The Hindu Business Line, accessed from: https://www.thehindubusinessline.com/markets/stock-market-highlights-04-june-2024/article68246349.ece

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