The Indian stock market experienced one of the steepest falls from one day to 7 April, because both benchmarkes-sensex and Nifty 50-Lake fell 3%. The massacre at Dalal Street was activated by a melting of the world market, driven by concern about the rate policy of US President Donald Trump and the growing fears that an extensive trade war could push the world economy to a recession.
When we talk about stock market crashes in India, the notorious Harshad Mehta Scam of 1992 or the global financial collapse of 2008 often comes to mind. But few know that India witnessed his very first stock market crash ever in 1865-Bijna 150 years ago. And interesting is that it had a strong American connection.
The bubble that grew too fast
The background of the crash was the American Civil War (1861-1865). During this period the cotton supply from the Southern United States to Great Britain was cut off because of the war. As a result, Bombay (now Mumbai) became an important supplier of cotton to British textile factories, which led to an unprecedented tree in cotton export.
This sudden question led to rising cotton prices. The business community of Bombay – largely composed of traders and speculators – took action. The Bombay Cotton market exploded and the wrinkle effect was also seen on the local stock market.
In those days, India did not have a formal stock exchange such as the Bombay Stock Exchange (BSE) of today or National Stock Exchange of India (NSE). But trade took place informally – mainly in the form of banking shares, trade, shipping and insurance companies. While the cotton tree escalated, the equity prices of companies – some of which had only been determined a few years earlier – rose to untenable level.
For example, shares of the Back Bay Reclamation Company, with a nominal value of £5,000, reportedly traded on an amazing £50,000, according to reports. Likewise, bank or Bombay shares, originally appreciated on £500, risen to £2,850.
When the war ended, the dream did that too
The euphoria lasted until April 1865 – when the American Civil War ended. Restored with the peace, cotton supply rejected from the US and British buyers no longer had to be dependent on Indian cotton.
Suddenly the blown cotton prices started to fall. And also the speculative bubble in Bombay. Investors who had borrowed heavily to bet on shares and cotton prices were overwhelmed. Panic started. The market crashed. Fortunes were lost at night.
The collapse was just as dramatic as the turnout. Back Bay Advertising Company shares that had risen £50,000, dropped down £2,000 – a decrease of more than 96%, according to reports. Likewise, shares of the Bank or Bombay, which had reached a peak £2,850, reportedly to justice £87, Giving away important investor richness.
Real estate and bankruptcies followed
It was not just the stock market. The Bombay real estate sector also collapsed, because prices had risen together with the cotton tree. Banks, brokers and traders who had extended Easy Credit were exposed to enormous standard values.
In the mid -1865, thousands of investors had gone bankrupt and the economy of the city took a huge hit. The episode is often called the “Share Mania of 1865”.
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