For the first time, Sensex hits the 70,000 benchmark!
Let’s go and explore the history of Sensex and understand some milestones of the Indian stock Market. The journey to 70,000 is full of turning events, some bitter and some sweet. Before diving into the history, let me tell you some facts about the Sensex.
Sensex also known as S&P BSE Sensex is the benchmark of the stock index of the Indian Stock Market. Sensex represents the performance of Indian economics and market conditions. Sensex is the composition of the 30 largest and most actively traded companies in India. Now let’s dive into the history, important events, and milestones of Sensex.
The first Stock market was formed in the 1870s. ‘The native share and Stock broker’s association’ was the first Share trading association which was later termed as BSE(Bombay Stock Exchange). There were 318 members at that time in BSE.
During the late 19th and 20th, several other stock exchanges came into existence like the Calcutta Stock Exchange and Madras Stock Exchange but BSE remains dominant. In 1956, India passed the Securities Contracts Regulation Act to formalize stock trading.
- Inception of the Sensex Journey
Sensex was launched on January 1, 1986, with a base year of 1979 and a base value of 100. Sensex was composed of stocks of 30 top companies at that time.
- Harshad Mehta Era and Scam(1992)
During the late 90s, people started to consider the stock market as a money-making scheme. Harshad Mehta, a Mumbai-based stock broker took advantage of loopholes in the banking system and pumped the stock values up to 1400%.
Before the early 90s, Indian banks couldn’t invest in stocks, but they were supposed to make profits and hold a specific amount of their assets in government fixed-interest bonds. If a bank didn’t have enough government bonds, it could buy them from other banks. Harshad Mehta saw an opportunity in this situation. Certain banks had a lot of government bonds due to their profits, while others didn’t have enough.
He cleverly acts as an intermediary to obtain bonds from banks with access and promise to repay them. In the same way, he borrowed money from those banks which were eager to purchase government bonds. He assured the banks that he would return after making the necessary purchase.
He created a chain, where he had both bonds and cash. He pumped the cash into the stock market and boosted the share prices. He majorly put money into the share of ACC and increased the share from 200 to 9000 in just 3 months with an extraordinary 4400% increment.
In 1992, journalist Sucheta Dalal exposed this scam and the stock market crashed badly due to which Harshad Mehta could not book his profit. Earlier, he could return the money to the bank by booking profit from stocks. But now he failed to give money back to banks. Due to this, they lost 3-4000 crore Rupees.
The rally that drew the market from 1000 to 4467 finally ended in June 1992. Sensex dropped around 2000 points in June by around 60%. The sudden decline caused panic and caused huge losses to Investors.
- Kargil War(1999)
The Kargil War started in 1999 when Pakistan attacked Indian territory and occupied Kargil hill. The Indian economy and stock markets had a high impact due to the Kargil War. It increased market volatility and sharp fluctuations are seen in the price of stocks. Defense and arms-related industries had experienced growth in this period but tourism and consumer-based industries faced challenges
The amount of money that Foreign Institutional Investors (FIIs) are investing has gone down a lot. The Indian government launched various packages and policies to boost investor’s confidence. After India’s victory, market sentiments improved gradually. Sensex experienced high volatility during this period. In the beginning, the market reacted negatively but it was 24% up by the end of the war.
- Market Boom in 2000s
The IT sector showed a significant move after 2000 which led Sensex to cross 6000 points. Several factors like the expansion of the Internet, technology updates, and the spike in demand for digital services caused this boom in stock prices of IT shares.
In February 2006, the Market crossed 10,000 for the first time due to heavy buying of foreign Institutional Investors(FIIs) and local operators. At the end of 2007, Sensex had crossed the level of 20,000 due to buying of various funds.
- Global Financial Crisis(2008)
The 2008 global financial crisis was one of the worst crises ever faced by the Market. A problem that started in the USA due to the failure of the subprime mortgage market has slowly covered the global financial market which caused a huge crash in the majority of stock exchanges. This crisis had a significant impact on the Indian Market.
The Indian market has seen a sharp decline during this period. Sensex dropped from 20000 in January 2008 to 9000 in October 2008. FIIs had removed over 12 Billion money from the Indian Market. The market became highly volatile due to the economic downturn. At the start of 2009, the market started to recover and soon it came to track.
- Demonetization(2016)
In 2016, the Indian government announced the ban of 500 and 1000 notes. This was a very quick decision by the government that led to a temporary cash crunch in the market. BSE Sensex dropped by over 6%. People were worried about money so they stopped investing.
The Pharma sector had shown a big move due to stockpiling before December 15 whereas real estate has shown a mixed reaction due to fluctuations in realty prices. Both the public and private bank sectors had seen massive funds flowing into it. The market sentiments were not negative and after a small correction, the Sensex went up.
- Covid Pandemic(2019)
In the starting months of 2019, Covid has started spreading across the world. In February and March, the Stock market faced significant challenges due to the covid. At the end of February, Sensex started falling the entire week. The stock has reached its worst weekly fall since 2009.
In March, yes, the bank was taken over by the RBI which added to this downtrend and the market fell significantly. Throughout the march, Yes bank crisis and COVID fear led to further market declines. Sensex touched its 33-month low due to the global economic downturn. Sensex fell around 33% due to covid crisis.
This downfall finally ended in August 2020 and the market started to recover.
How did the market recover Post Covid?
The Indian Government has launched various packages and policies to support the pace of the financial market(Sensex). These initiatives added confidence in the economy. Vaccine development and distribution provided hope for recovery and boosted market sentiments.
Positive trends in the global market and re-engagement of Foreign Institutional investors(FIIs) also influence the recovery of Sensex. Three years since the COVID crash, the Sensex is currently trading at 70,000. Sensex rallied from 30,000 to 70,000 in just three years more than double.
