History of Sensex crashes – A lesson to the retail investor By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

September 3, 2015 | Posted by bobbysrinivasan << back to blog

Retail investor in the Indian stock market are the most vulnerable people, this is partly due to their lack of knowledge of how market behave during periods of crisis. When they loose money they loose heart and blame everything from luck to destiny. They have neither the patience nor the courage to withstand the market volatility. They succumb very easily by selling at the lowest point. They often turn out to be last suckers to buy into the market in a rising market and last buckers to exit the market when it is falling. Here are some interesting facts that will help them.

Fact 1: There are four different types of players in the market. They are the Foreign Institutional Investor (FII), the Domestic Institutional Investor (DII), retail investor and the promoter of the company.

Fact 2: According to data available, FIIs control nearly 45% of all shares traded in the Sensex.

Fact 3: Their action to buy in to the market or to sell affects the stock prices significantly.

Fact 4: Retail investor’s chance of making money consistently is small. Every now and then market volatility will happen and rattle them and their confidence.

Fact 5: The market will always have high volatility because the FIIs may want to move their funds to another market. They are fair weather friends. They will come in when everything is going good for them but the moment they notice a better opportunity elsewhere they will exit the market in a big way thus creating a huge drop in prices.

Fact 6: In the last 10 years, the Indian Sensex has fallen nearly 10 times with each fall amounting to 5 to 6%. Look at the data and the reason in the next page.

Fact 7: Going forward remember that the market will first consolidate gain and have a nice run up followed by a big fall. It is wise for a retail investor to time his exit to avoid being caught in the volatility.

BIGGEST FALLS IN SENSEX
Date	Close	Fall (Pts)	Reason
Aug 23, ‘15	25,724	1,625	Fears of China meltdown triggers global market crash.
Jan 21, ‘08	17,605	1,408	Looming US recession fears pull down global markets.
Oct 24, ‘08	8,701	1,071	Worsening global financial situation, RBI holding rates.
Mar 17, ‘08	14,809	951	Fast-spreading global contagion sinks markets.
Mar 3, ‘08	16,678	901	Crash in US following weak eco data, AIG declaring loss.
Jan 22, ‘08	16,730	875	Sensex hits lower circuit on US recession, rebounds later.
July 6, ‘09	14,043	870	Union Budget disappoints Dalal Street.
Jan 6, ‘15	26,987	855	Markets sink on sliding crude oil, Greek turmoil.
Feb 11, ‘08	16,631	834	US-led global fin crisis, R-Power dips below IPO price on debut.
May 18, ‘06	11,391	826	Fears of rising US Interest rates, new tax on FIIs.

Fact 8: Finally it is important to know that whenever a new information of importance happens, the retail investor will be the last one to know as he is not a professional but an amateur.

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