5 Biggest Stock Market Crashes In India

Introduction

Imagine this: The stock market crashes in just a few days, wiping billions of dollars in investor wealth. Panic ensues as headlines scream economic turmoil and shattered dreams. This may sound like a scene from a Hollywood movie, but the reality is that stock market crashes have happened throughout history, leaving lasting scars on investors and economies. 

Did you know that Covid-19 had the biggest impact on the stock market, wiping out over a whopping INR 12 lakh crore of the market in just a week? But, with each market crash, investors become smarter and more efficient with their ways. They always devise a new strategy to bounce back from the vicious cycle of a bearish market!

So, read on to learn more about the five biggest market crashes in the history of India.

5 Biggest Stock Market Crashes

Harshad Mehta Scam (1992)

On 29th April 1992, the biggest financial scam in India was exposed. A scam that wiped out INR 1 lakh crores from the market cap of the Indian stock market over a period of three months.

On that very day, Sensex plunged by 570 points, causing a sharp fall of 12.77% in the Indian stock market.

Harshad Mehta was a renowned broker known as the “Big Bull of Dalal Street”. He had a clientele comprising the most powerful people of the 90s. Harshad committed a series of scams exploiting the loopholes of banks and financial markets. He used to rig stock prices by creating fake demand for a particular stock and selling them to book profits. For instance, Harshad Mehta invested in ACC Cement Ltd, pumping its stock prices from INR 200 to INR 9000 (4400% rise) in just a span of 2-3 months. He also syphoned INR 1700 crores from the banks to fund such frauds.

However, within a few months, the scam came to the limelight, causing a massive drop in the Sensex of more than 40%. This scam lured many individuals with the illusion of quick gains. This not only harmed Harshad’s clientele but also wiped out some people's life savings, including his friends and family. It shattered the retail investor's confidence and highlighted the impending need for due diligence and regulations.

US Financial Crisis (2008)

The US Financial Crisis of early 2008, triggered by the subprime mortgage crisis, had a rolling impact on the global stock market, including India. On January 21, 2008, popularly known as “Black Monday”, Sensex tanked by 1408 points, erasing the investor's wealth. This fall was a ripple effect of the fallout of the housing bubble in the US. This was followed by the rise of interest rates in the US, causing panic and fear among investors that America might go into recession. The crisis severely affected many investors with foreign mutual funds, highlighting the need for diversification and a balanced portfolio to mitigate risks.

By the end of 2008, Sensex dropped from its peak of 20,645 to 9,716 causing a massive 50% fall in just 12 months.

Demonetisation & US Presidential Elections (2016)

In 2016, India faced two significant events that profoundly impacted the stock market.

2015-2016 was a tough period for the Indian stock market due to the non-performing assets held by the banks and the global economic weakness. By February 2016, the Sensex had dropped by 26% compared to the past eleven months. This period was marked by the simultaneous event of demonetization of 500 and INR 1000 notes in India and the election of Donald Trump as the president. 

It took a major hit on 9th November 2016 (the day after demonetisation), when the Sensex and Nifty 50 plunged by over 6%.

Even though the cause of demonetisation favoured the greater good, eroding the black money menace. But the investors faced a rollercoaster rise as the market swung. Only those who focussed on long-term strategies were better positioned to face the storm.

Yuan Devaluation & Brexit (2015)

On 24 August 2015, Sensex crashed by 5.94%, wiping out INR 7 lakh crores in terms of market cap. 

However, two significant factors were responsible for the crash. First,  the Chinese government devalued its national currency, the Yuan, to boost China’s national exports. The Second was the exit of the United Kingdom from the European Union, leading to uncertainty about the EU’s future. These factors were further backed by a fall in petroleum prices and the default made by the Greeks.

During this period, the Sensex took a hit of 854 points, losing investor's money who had international and domestic investments. This crash highlights the importance of regularly monitoring the global markets and diversifying across asset classes & geographies.

Covid-19 Pandemic (2020)

As we all know, Covid -19 had a catastrophic impact on the global stock market. India was no different. Sensex tumbled 13,985 points in just one week.

On 23rd March 2020, Sensex & Nifty took the greatest hit of over 13%, wiping out INR 13.95 lakh crore from the investor's pocket. On this catastrophic day, the settlement was so bad that 90% of companies declined to trade their stock the following days. This coincided with the bankruptcy of Yes Bank, causing a lack of investor confidence in the Banking, Financial and Insurance (BFSI) sector. 

Only when the role of the BFSI sector was more important than ever did it take a major hit. Investors were gripped with fear, uncertainty, panic selling, and chaotic distress. The uncertainty of the possible cure for the disease made it more dreadful. It led to unprecedented turmoil for retail investors.

How Can Investors Safeguard Their Portfolios During A Stock Market Crash?

Well, the stock market crash can take any investor by surprise. It is highly uncertain to predict the exact impact of a crash before the event. But it is extremely important for investors, especially retail ones, to ensure the safety of their investments in such events and avoid possible losses. The decisions should not result from fear and stress but a composed calculation. Here are some tips investors can follow to avoid losses in a market crash.

• Diversification Is The Key: Diversifying investments across different sectors, asset classes, and geographical regions can help mitigate risk. By spreading investments, losses in one area can be offset by gains in others, reducing the overall impact of a stock market crash—look out for non-market-linked investments with low impact based on the market factors.
• Asset Allocation: Maintaining a well-balanced portfolio with an appropriate allocation of assets based on risk tolerance and investment goals is crucial. Allocating assets across equities, bonds, cash, and other alternative investments can provide stability during market downturns. Platforms like Grip avail various investment instruments such as corporate bonds, Startup Equity & Commercial Real Estate. These instruments are not directly linked to market securities, reducing the concentration risk and helping you earn returns.
• Regular Monitoring And Rebalancing: Keeping a close eye on investments and periodically rebalancing the portfolio can help align it with changing market conditions. This ensures that the portfolio remains aligned with long-term goals and risk tolerance. 
• Seek Professional Advice: Consulting with a financial advisor can provide valuable insights and guidance during a market crash. They can help investors make informed decisions, navigate volatility, and better adjust portfolios to withstand market downturns.
• Use Rupee-Cost Averaging: Rupee-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market conditions. This strategy allows investors to buy more shares when prices are low and fewer when prices are high. Over time, this can help reduce the impact of market volatility and potentially generate favourable long-term returns.

Conclusion

Market crashes can be overwhelming at times. They are often unavoidable and unpredictable. You might even feel absolutely apprehensive about investing ever. But that is not the solution to keep your money safe. In fact, every year, you might lose its value to inflation. 

Solution! Diversify your investments across alternative instruments to mitigate the risk from upcoming market crashes. Plan your investment and withdrawal according to your financial goals. Assess your risk appetite and lookout for instruments with low impact from market securities. To know more about various alternative options in India, Sign up on Grip today!

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