Stock market crash is a drastic fall of prices in the rates of stocks which hold significant position in stock market. Crashes in stock market create a state panic amongst the economic growth of the country. If we look back in history there are several historical market crashes which will create fear in your mind if you are planning to do the investment in stock market.
Stock market will go well till there is a constant cycle of production which is followed by the constant cycle of income. These two factors majorly effect the growth of stock market, but the twist comes when goodwill of any company gets spoilt due to several reasons and prices of stock start falling down. Stock market crashes when the stock prices of some large cap companies registered on BSE OR NSE fall heavily that too within a span of few days. This fall in prices bring restlessness in the market. And even the companies who are performing better shatter down. Reasons for the crash of stock market cannot be predicted but after the crash, experts spend a lot of time in finding out the reasons that lead to the crash of markets. Like if we go back in history, we can see that the scam of Harshad Mehta in the year 1991- 1992, who was a big bull of the stock market that time was the one who took advantage of a small loophole of banks start purchasing shares against the government bonds which was the reason that the market became bullish that time and when banks started asking back their money he has to sell those shares which was the reason for the crash of stock markets in India that year. There is no single factor which is responsible for the crash of markets in India. Investor’s psychology during the crash period holds an important role, because at times of market crash, in state of panic he gets shaken up and starts selling his share too that will prove to be more disastrous. If we look in the history of the market crash, we can see that highest intraday fall was seen in sensex on 21st Jan, 2008 when sensex was down 1408 points at the end of the last session. But at the end of the day it recovered and closed at 17,605 by seeing a day’s low of 16,963. On 22nd Jan, 2008 also sensex saw one of its other bigger fall when it came to 15,332 which was 2,273 points down. On 3rd Mar, 2008 sensex closed at 16,677. On 17th Aug, 2007 market crashed down 1744 points and the markets got closed down for an hour, this crash occur because SEBI, said that if FII’s want to take bonds or shares in India they should be issued participatory notes. List of market crashes in history is endless. There are several factors which are responsible for crash of stock market which can be described as follows: a) political instability is one of the factor which can be the reason for market crash because FII’s feel insecure in instable environment and start selling which can be the major reason for crash; b) When there is a rise in stock prices in very short span of time, single negative news like appreciation in value of rupee or rise in prices of crude will bring restlessness in market and can be responsible for crash of stock market; c) sometimes government policies can become the reason for the crash of stock market in India; d) Foreign Investors can play the major role in the crash markets, if all of them start selling their huge share at same time; e) raising the value of CRR by Reserve Bank of India will have the negative impact on markets which can force them to crash.
In order to conclude this topic we can say that, an individual who is investing in stock market should book the profit timely without getting greedy for more money because markets have become so volatile and business cycle is changing tremendously due to globalization. To be on the safer side and learning from historical crashes one should invest in different stocks and book profits on time.