The stock market is where people can buy and sell shares and stocks of any listed company. A share signifies part ownership of a company. The stock is the entire collection of its shares. When you buy shares of a company listed in the stock market, you can make profits when they perform well and vice versa. Moreover, you can sell them at any point.
How did the stock market start?
The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are two of the stock markets in India where the country’s most trading takes place. BSE was founded in 1875 and is India’s oldest stock exchange. NSE initiated trading in 1994, but it was established two years before that. It is the largest stock market in the country in terms of volume.
Stock market crashes in India
In the long history of Indian stock trading, there have been a few stock market crashes affecting the shareholders financially. If you want to invest in shares, it is important to know the reasons for previous crashes in India’s stock market. It will help you get an idea about factors that might affect the market.
1. Stock market crash 1992
Harshad Mehta single-handedly caused the 1992 stock market crash, the largest in India in terms of percentage. He was a broker who planned the securities scam and manipulated the stock market, which resulted in the fall. During that period, the BSE experienced a 12.77% leap.
2. Stock market crash 2004 BSE fell by 842 points during the 2004 crash. Securities and Exchange Board of India (SEBI) investigated this incident to discover that the crash resulted from UBS carrying out a large amount of selling orders for anonymous clients. UBS was a prominent overseas institutional investor.
3. Stock market crash 2007 It is one of the worst stock market crashes in India, with long-lasting effects. SENSEX suddenly fell by 617 points on 2nd April 2007. It witnessed another fall of 615 points on 1st August 2007. It was the third-largest loss for the index in Indian history. The stock market continued to crash regularly for the rest of the year, too.
4. Stock market crash 2008 The Great Recession hit the world in 2008, the effects of which appeared as a fall of 1408 points in BSE. It affected the investors significantly and resulted in a loss of wealth. SENSEX experienced a dip of 875 points on 22nd January 2008 and another 834 points on 11th February 2008. On 24th October 2008, SENSEX fell by 1,070 points again. It was the second-largest intraday SENSEX crash.
5. Stock market crash 2015-2016 The first hit of 2015 came as an 854-point drop in SENSEX on 6th January. But it was just the beginning as the SENSEX fell by 1,624 points on 24th August 2015. At the same time, NSE also fell by more than 490 points. According to experts, this crash resulted from hasty stock selling in India and China after a slowdown in the latter’s markets.
BSE experienced four consecutive falls of over 1600 points by February 2016 as the crashes continued. It occurred due to the increasing numbers of Non-Performing Assets (NPAs) in India’s banking industry and other global events. The country experienced another share market crash in November 2016 due to demonetization.
6. Stock market crash 2019 The year 2019 witnessed a 400-point dip in SENSEX and a NIFTY crash of 10,850 points as the US Federal Reserve dashed expectations of a long cycle of rate cuts. The crash continued in the Indian stock market due to the signs of economic slowdown and low quarterly earnings. As a result, investors in BSE lost ₹13.70 lakh crore after Budget 2019.
Effects of a stock market crash
When the stock market bubble bursts, it leads to a bear market, during which the investors sell off stocks and there is a 20% or higher decline in the stock market value without any improvement. Significant drops in stock prices can lead to insolvency and recession as the growth of affected companies slows down. They stop generating enough revenues, resulting in employee layoffs. Investors also suffer losses if the stock market condition does not improve quickly.
What to do during and after a stock market crash? After a market crash, the first thing to do is checking your stocks. Determine which shares have been affected the most. Recheck if your portfolio includes more high-risk stocks or safe ones. Once you know your investment portfolio exposure, take the below steps to counter the market condition:
- Reallocate your money to better-performing stocks.
- Diversify your investments to spread the risk.
- Remain patient as the stock market always tends to correct itself in the long run.
Things to remember before investing in the stock market
Methodical investments in the stock market can help you build a significant fortune in the long run. But you must practice discipline and stay patient. Here are four useful tips that can help you with investments.
1. Educate yourself It is important to learn the basic rules of trading and the factors that can affect the market. Do not start investing in stocks unless you gain knowledge about their workings, as you may end up in losses.
2. Invest your surplus money only Never invest in the stock market if you cannot afford to lose money. If you have some surplus amount, use that to buy historically well-performing shares. You may even take risks with some extra cash. But you must always set a limit and never expose yourself to too much loss.
3. Do not follow the herd Many investors buy shares that their friends, relatives, or neighbours suggest. However, that is a slippery slope unless you verify their suggestions thoroughly before investing. Always conduct research about a company’s fundamentals and its current performance in the stock market before buying its shares.
4. Set realistic goals Having unrealistic dreams drives you to take huge risks, increasing your chances of losing money. Remember that the stock market always goes through ups and downs. And you must change your investment behaviour and expectations accordingly.
The above mentioned suggestions are only for helping you develop self-control when investing in stocks. The information about the past market crashes can be scary, but it also shows that the market recovered on every occasion. So, do not fear buying stocks. With a bit of patience, you can make substantial profits from stocks and accumulate wealth in the long run.
This is a companion discussion topic for the original entry at http://jupiter.money/resources/stock-market-crashes-in-india/