When a stock market crashes, it could lead to specific devastating circumstances that not only hampers individuals but even the economy. The market crash further leads to a decrease in the value of the stocks held in turn, making the stocks in your portfolio total worthless.
If you are thinking that diversifying the portfolio could aid you in preventing yourself from the decreased stock prices, remember this would be useless because whenever the stock market crashes it drags down every sector of the stock market thus leaving no grounds for diversification of the portfolio. The crash not only affects every market but it even disturbs the rest of the economy. For example, the crash of 1929 not only brought the value of the stocks down by 80% but it also led to the situation of Great depression in the whole economy.
We know what the trading of stocks is like, there are some who are buying the shares and some who might sell their stocks due to certain factors. But during a market crash, every individual is focused on selling off their stocks, and there is neither a single individual who is willing to buy the stock.
Majorly starts with some investors selling or dumping their stocks, and after some time a spiral effect is seen where every single start panicking looking into the condition and decides to sell their shares as well. With this, the price of the stocks plummets faster making the investors sell more. Such situation further leads to decreasing the value of the stock tremendously that it becomes a mere fraction of the previous price.
Therefore, when a stock market crashes not only the people feel the pain but the companies are also unable to raise the money by selling the stock thus hurting the growth of the company. The market crash even affects the employability rate of the economy, leading to increasing unemployment rates. The crash majorly affects the individual who is entering or approaching retirement. The market crash lists the contents of 401(k) and other retirement plans worthless as per the amount initially induced by the retiree.
The crash even makes many investors skittish. There can be situations where the investors might withdraw all the stocks and would concentrate on safer and lower risk investments. Many times, the investors even gain after the market crash. Such a thing only happens when you do not want to sell your stocks immediately than the market crash does not affect you. Though the market might crash many times eventually, the investors would buy the capital, and this would ultimately lead to the up-liftmen in the market.
Stock Market crashes symbolize times of wealth destruction and pain to investors. They also symbolize times of opportunity and resilience to few. A stock market crash is when a market index faces a rapid and unanticipated severe drop in a day or a few days of trading. Today we look at some of the worst single-day falls that affected the Sensex over the history of Bombay Stock Exchange(BSE).
The first COVID-19 case in India was traced on January 30th, 2020. The following weeks involved what seemed like just a COVID-19 panic. This was based on the effects the companies globally would face with the worlds leading manufacturer China busy battling the virus.
February saw a silver lining for the Indian economy as an oil feud between Russia and OPEC resulted in a global crash in oil prices to $30 per barrel. This was over a dispute over the steps to be taken to face the demand slump. However, the benefits of the price slash were not relayed to the end consumers. The prices still are still set to those before the crash. The benefit of the reduced price still remains with the government.
March 6th saw Yes Bank at the brink of failure adding to the woes of COVID-19. This was due to the bad loans resulting in high NPAs with the bank eventually requiring government intervention. This further gave a clearer picture of the ailing banking sector. The markets saw a 1,000 point loss on March 4th and March 6th. Lockdowns imposed around Europe and ‘Emergency’ declared in the US saw Foreign institutional investors fleeing the Indian markets to invest in stable developed countries. As the COVID-19 cases kept worsening in India the markets entered a bearish slump.
On 23rd March the markets fell by a record of 13.15%. This was the largest fall in Indian market history. The lockdown which followed did not bring any relief to the stock markets. As of April, the markets had reached depths wiping out earnings from the last three years.
The 2008 financial crisis was known as the biggest disaster after The Great Depression. The financial crisis was caused by the bubble created by the housing market in the US. It trashed not only the ‘American Dream’ but also rippled on throughout the world killing many Indian Dreams too. The Ripple effect saw the market fall a number of times in 2008. The year 2008-09 had seen the Indian markets fall by over 50% from its high.
Harshad Mehta was known as “The Sunny Deol of the Indian Stock Market”, “ The Big Bull”, and eventually was the eponym to his scam. Harshad Mehta was a broker known for his lush luxurious lifestyle. He took advantage of the regulations which barred banks from investing in the stock markets in the 1980s and 1990s.
Indian stock market crashes to date were caused due to a variety of reasons like change of ruling parties, actions taken by the government (demonetization), ripple effect of international market crashes and now even pandemics. These crashes may seem like a picture of the riskiness and volatility of the Indian markets, however, they can also be viewed as a testament to the tougher times they have recovered from. Today the Indian Markets face bigger challenges and only time can tell how they cope with the forever changing environment of 2020.