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India's stock market has witnessed several significant crashes that have shaped the market landscape and tested investor resilience. From the infamous 1992 Harshad Mehta scam to the global shocks like the 2008 financial crisis, these events highlight the unpredictable nature of markets and the importance of strong regulatory frameworks. Understanding these events can help investors navigate future market challenges.
Some of the major stock market crashes are detailed below:
What happened: Broker Harshad Mehta manipulated stock prices using fraudulent bank receipts, inflating the market in early 1992.
Impact: The Sensex doubled within months, followed by a steep 40–50% crash when the scam unraveled. Investors faced massive losses, prompting SEBI to tighten regulations and improve transparent monitoring.
What happened: Following the US housing bubble burst and Lehman Brothers collapse, global panic led to sharp capital flight from Indian equities.
Impact: The Sensex plummeted nearly 60% from its peak, reflecting global panic. Although circuit breakers had already been introduced in 2001, the 2008 crisis led to stronger risk surveillance and regulatory tightening to handle extreme volatility and FII-driven outflows.
What happened: China’s surprise devaluation of its currency triggered global uncertainty. Foreign investors withdrew capital from emerging markets, including India.
Impact: The Sensex fell about 20%. The Reserve Bank of India (RBI) intervened to stabilise the rupee, and SEBI revised exposure norms for foreign portfolio investors.
What happened: On November 8, 2016, the Indian government invalidated ₹500 and ₹1,000 notes, removing most of the cash from circulation overnight.
Impact: The Sensex fell about 20%. The Reserve Bank of India (RBI) intervened to stabilise the rupee, and SEBI revised exposure norms for foreign portfolio investors.
What happened: Rapid global lockdowns prompted by the COVID‑19 pandemic ignited one of the fastest drops in modern history.
Impact: The Sensex declined about 38% between February and March 2020. However, it recovered within months aided by fiscal stimulus, RBI liquidity measures, and strong domestic investor participation.
The following are some of the lessons for investors from these historical crashes:
Spreading investments across different sectors and asset classes can help mitigate the impact of market shocks.
Crises have led to the introduction of circuit breakers, better surveillance, and investor protection regulations.
Events such as pandemics and geopolitical issues can have rapid and far-reaching effects on the market.
Indian markets have historically recovered well from crashes, reaffirming the importance of a long-term investment approach.
The history of market crashes in India reflects the interplay of internal factors, such as fraud, and external shocks, such as global crises. Despite the downturns, the Indian stock market has shown resilience, with strong recoveries over time. For investors, the key takeaway is the importance of diversification, understanding market risks, and maintaining a long-term perspective.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Market crashes are not necessarily becoming more frequent, but they often coincide with global crises or domestic issues, such as fraud or economic instability. Post-2008, regulatory measures and risk management frameworks have significantly strengthened, making the Indian market more resilient to external shocks and reducing the frequency of major downturns.
Yes, foreign institutional investor (FII) withdrawals have historically amplified market crashes, especially during periods of global financial stress. For instance, during the 2008 global financial crisis and the 2015 China-related market pullback, the outflow of offshore capital added significant downward pressure on Indian markets. This highlights the impact of global sentiment on emerging market economies like India.
Recovery times after a crash vary. For example, after the 2008 financial crisis, it took about three years for the market to fully recover and regain its peak. However, the recovery post-COVID-19 was much quicker, with the market bouncing back within months due to fiscal stimulus, low interest rates, and strong domestic investor participation. Market recovery speed depends on the severity of the crash and the factors causing it.
For long-term investors, it is often advisable to stay invested through market crashes. Crashes can offer opportunities to buy fundamentally strong stocks at lower prices. Investors with a long-term perspective typically see recovery in the years following a market downturn. For those with shorter investment horizons, maintaining a diversified portfolio and avoiding emotional decisions is key to managing risk during these times.
While history offers valuable insights and lessons, each market crash is triggered by unique factors—whether it's an economic crisis, geopolitical event, or market speculation. While we can’t predict the exact timing or causes of future crashes, maintaining a well-diversified portfolio and practicing solid risk management strategies are effective ways to prepare for market volatility. Diversification and a long-term outlook remain essential defense mechanisms for investors.
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