The stock market is filled with individuals who know the price of everything,
but the value of nothing. - By Phillip Fisher.
A financial or economical crisis is a situation in which the value of a
financial institution or asset drops frequently and it is often associated with
a rapidly on the foreign banks, in which investors value of assets decreases or
withdraw money from savings accounts with the expectation that the value of
those assets will drop if they remain at a financial institution. Several
investment policies are made after making a decision about stock exchange
efficiency when stock markets were affected by financial crisis shocks.
article is on the stock exchange which are few, particularly in the aptitude of
stock markets crashes in India. This article adds to the literature on market
efficiency by studying the impact of previous financial crisis on stock
exchange, impacts of stock market crash due to pandemic and COVID-19 and
efficiency in emerging stock markets such as India.
A Stock Market crash is a surprising fall in the costs of stock value which
spread over a significant part of a market bringing about loss of financial
backers' riches. They are the aftereffect of the alarm in the brain of financial
backers just as monetary elements. Securities exchange crashes regularly are
joined by the financial downturn, theories, high joblessness which prompts the
Indian stock exchange are the one of the oldest stock market
or Exchange in Asia. It goes back to the 18th century when the British Raj (East
India Company) used to circulate loan securities. The information or data was
collected from two stock exchange i.e. Bombay Stock Exchange (BSE) and National
Stock Exchange (NSE) in India. "The stock market is a volatile place. Hence,
there have been times when markets have crashed and caused losses to stock
investors within no time.
A crash is usually defined as a rapid double-digit
fall in indices. While the markets have always recovered sometimes, the impact
of a crash has lasted for years." "These reforms were taken out with the aim
of improving market's condition by enhancing transparency, efficiency,
preventing unfair trade practices and bring the Indian stock market up to
international standards." In the Indian stock market past history, there has
been a few market crashes in India affecting the shareholders or stockbrokers
At the point where the stock exchange explodes, it affects a market of bear,
during which the financial investors sells their stocks and there is a 20% or
higher decrease in the stock exchange with no improvement. Critical fall in
stock price can prompt bankruptcy and recession as the development of companies
falls. They stops producing enough incomes and revenues, resulting in employees
cutbacks. Financial Investors does endure loses if the stock market condition
doesn't improve rapidly.
After a stock market crash, the very first thing which
a investor can do is:
- Keep a track on their stocks
- Analyze which shares have been affected the most because of crash
- Recheck if the investor's portfolio includes more high-risk stocks or
Great recession on stock exchange can result to a bear market. This occurs when
the market falls 10% beyond the neutral level, resulting in a total loss of 20%
or more. A recession can also be triggered by a stock market crash. If the
market crash, corporations have less ability to grow in the economy. Companies
or firms that don't produce enough will have to lay off some workers or
employees in order to stay solvent. As the market continuous to fall, the
economy decreases which results in creating a recession in stock market.
Various Stock Market Crashes in India
In 1992, Harshad mehta was a stockbroker in Bombay who was responsible for the
Indian stock market crash in 1992 by stock off around Rs 1,000 crore from the
financial system in order to buy equities from the Bombay Stock Exchange (BSE).
He was also named as the stock market's Big Bull, and all present original
investors followed in his path and continued to buy equities.
He managed to
fluctuate the Sensex by about 275 percent in a year, and markets surged from
1000 points to 4000 points. His scheme came to light when the State Bank of
India founded a shortage in government securities. Harshad Mehta was found to
have manipulated the stock market system out of approximately Rs 3,500 crores,
according to the probe. The markets fell by 72 percent on August 6, 1992, after
the scam was discovered, resulting in one of the largest drops in the Indian
stock market ever.
During the 2004 crash of stock market, the Bombay Stock Exchange (BSE) falls by
842 points. The Securities and Exchange Board of India (SEBI) looked into the
matter and finds that the crash was caused by UBS placing a significant number
of selling orders for anonymous clients. UBS was a well-known foreign
institutional investor. On 17th May 2004, SEBI took action against UBS a foreign
UBS was one of the top sellers of shares in May 2004.
UBS executed large-scale sell orders on behalf of anonymous clients, many of
whom SEBI believes are Indians. These clients used UBS to trade Indian stock
market, but they hid behind a web of investment arrangements that was connected
from India to Mauritius, London, the British Virgin Islands, the United States
of America and back to India. SEBI founds the names of the eventual
beneficiaries of the UBS transactions on May 17, as well as assurances that they
were not Indians, during the year-long probe. UBS refused to respond to SEBI,
stating clients confidentiality as an excuse.
In 2008, the Great Recession on stock exchange shock the world, the affects of
which shows as a decrease of 1408 points in Bombay Stock Exchange (BSE). It
effected the investors or brokers unconditionally and resulted in a losses of
their wealth. SENSEX of BSE showed a fall of 875 points on 22nd Jan 2008 and
another 834 points on 11th Feb 2008. On 24th Oct 2008, SENSEX fall by 1,070
points again in the economy. It was the 2nd largest within one day SENSEX crash.
The worst fall in stock prices where experienced by Mahindra & Mahindra,
Hindalco Industries, Tata motors, DLF and Reliance industries.
In 2015-2016, the beginning of the year on 6th January, SENSEX falls with an
854-point. But it was only the start, as the SENSEX dropped 1,624 points on
August 24, 2015. At the same time, the National Stock Exchange (NSE) dropped by
over 490 points. Experts believe the fall was caused by rushed stock market
selling in India and China following a decline in the latter's markets.
As the crashes proceeded, the Bombay Stock Exchange (BSE) witnessed four
consecutive drops of over 1600 points by February 2016. It happened as a result
of an increase in Non-Performing Assets (NPAs) in India's banking finance, as
well as other global events. The country's stock market crashed again in
November 2016 as a result of demonetization declared by the Prime Minister. On
the other hand, many internal matter of the country also affected the stock
market like Surgical strike over Pakistan, Passing of GST bill and majorly
In 2020 due to the pandemic across the world, every stock market was taken down
by recession. But in Indian Stock Market, it would be entirely wrong to just
blame covid-19 as the alone reason. There are many factors which led to the 2020
crash. On 28th February, World Health Organization (WHO) announced coronavirus
by which SENSEX falls to 1448 points and NIFTY fell by 432 points. Then the next
fall of the stock markets was after RBI took over the YES Bank for
reconstruction it was happened due to rising NPA's.
Legislative Regulations Governing the Stock Exchange
- The Securities Contracts Act (Regulation), 1956
The Securities Contracts Act (Regulation), 1956 (now called SCRA) and the
Securities Contracts Act (Regulations) of 1957 are designed to regulate the sale
of shares and transactions in such securities in order to prevent unfavorable
assumptions. The law also focuses to monitor or regulate the selling and buying
of securities without restrictions on stock exchanges or markets, through the
licensing of stock brokers.
The Securities Contracts Act sets out different securities situated with
securities and establishes a process for the stock market to be recognized by
the Central Government/SEBI, the process of listing corporate transactions and
securities related to buying and selling securities on behalf of investors. It
provides direct and indirect full control over all aspects of securities
In particular, the Central Government of India has the power to control
- Managing and operating stock exchanges,
- Collateral contracts or mergers, and
- Listing of securities on stock exchanges or markets.
The act also includes:
Provisions for withdrawing recognition granted to stock. In terms of Section
5 of the Act, if the Central Government is of the opinion that the stock
exchange undermines trade interests or public interests, the government will
revoke the recognition given to the stock by giving notice and providing an
opportunity to be heard in the stock market.
- SEBI Act, 1992
The Securities and Exchange Board of India is the regulatory body for securities
and stock markets in India. As per defined under Section 3 of the SEBI Act, SEBI
is a business entity with a continuous sequence and the same seal with the
ability to hold, dispose and acquire of assets, both tangible. and immovable and
contractual, and will sue and be sued on its behalf. Section 11 of the SEBI Act
lists a number of functions or roles that SEBI plays in protecting, securing and
regulating the securities market.
Some of the tasks are:
- It helps in business management in stock trading and other financial
- It helps in regulating custodians of securities, credit rating agencies
and foreign portfolio investors.
- It helps in managing and registering consultants such as brokers,
sub-brokers, underwriters, bank brokers etc.
- SEBI Act helps in prohibiting fraudulent and unethical trading practices such
as price fraud, fraud etc. and regulating internal trade.
The law of India also gives SEBI several powers or authorities related to the
securities market. SEBI is empowered to make inquiries regarding investigations,
issue directives and penalties if any company action damages the profits of the
investors. It can pass orders such as trade suspensions, block market access,
attachment of mediators' bank accounts, etc.
- Companies Act, 2013
The Companies Act, 2013, prescribes functionality in the matter, distribution
and transfer of securities and corporate management features. Displays
disclosure standards on public affairs related to the capital, corporate
governance, listed companies and risk factors. It also helps in regulating the
capital gains, use of premiums and discounts or negotiation on issues, bonus
issues and rights, interest payments and dividends, the provision of annual
reports and other information.
Section 40 under Companies Act states as:
Each company, making a public promise, to submit an application to one or
more well-known stock exchanges for permission to process securities in a
This paper tells about the impacts of stock market crash on investors or
companies or firms and also various stock market crash in India and reasons for
the crash over the last 3 decades. Since it's impossible to foresee or predict
the market crash, it is necessary to be aware of the small fluctuations or
policies which may or may not affect the market.
In this paper, a fall because
of scams and other human-made situations is discussed and also about crashes
like, the 2008 global financial crises over the world, the affects of
Demonetization announced by the Government of India back in November 2016 and
COVID-19 effects. The stock market crash in 2020 is very crucial as it is the
first recession condition in India. The factor for the crash was the economic
lockdown over the country.
- Available at: https://groww.in/blog/history-of-stock-market-crashes-in-india/
Written By: Harsh Bhardwaj - Final Year law student pursing BBA-LLB corporate and IPR Hons. of The
Northcap University, Gurugram