One thing that a century of market history teaches us is simple: nothing lasts forever. Markets will rise, markets will fall — and while no one can predict the timing, everyone can prepare.
Despite several intermittent crises, Indian Equities have gone up over the long run mirroring earnings growth (153 times in 39 years).
What Counts as a “Crash”?
A meaningful market crash is typically defined as an equity decline of more than 30%.
Anything less is normal volatility.
A Look at Past Crashes
Market crashes tend to follow a pattern — often triggered by large systemic shocks, many originating in the US:
2001 – Dot-Com Burst: Excessive speculation in internet-based companies.
2008 – Global Financial Crisis: Lehman collapse and widespread leverage in risky mortgage products.
2013–14 – Taper Tantrum: US Fed’s announcement to reduce quantitative easing.
2020 – COVID Crash: A global, unexpected health and economic shutdown
The Repeating Pattern
There’s a clear trend: most global crashes have roots in US-driven events. When the US catches a cold, the world usually sneezes.
Also, market crashes at an interval of six to seven years, only to recover and make highs in future.
Today, something similar is brewing. The scale of money flowing into US equities on the back of the AI boom is unprecedented — and euphoria always deserves caution.
What Could Trigger the Next Major Fall?
A crash can be caused by any major macro dislocation, such as:
A situation where the US struggles to service its debt
A large-scale geopolitical conflict
The US entering a recession
AI not delivering the desired results
Job creation stagnation due to automation and AI
Tariffs pushing up import costs and feeding inflation
Slowing growth + rising inflation = potential stagflation
Any of these catalysts can cause global ripple effects.
A Word of Caution for Indian Investors
Of India’s 20 crore demat accounts, fewer than 1 crore investors have actually witnessed a real market crash. For many new investors, even a 5% decline feels like a major fall.
This lack of historical experience can lead to panic at the wrong time — or worse, exiting just before the recovery. On top of that checking investment value very frequently can cause anxiety to begineers.
How to Prepare for a Crash (and Convert It into an Opportunity)
1. Maintain Adequate Liquidity: Keep 3–6 months of money or 10-15% of portfolio in liquid/ultra-short-term funds. Crashes reward those who have cash.
2. Set Up Pre-Defined Buy Zones: Identify high-quality funds or stocks and define levels where you will add. A crash becomes an opportunity only if you act—not react.
3. Keep SIPs Running — Never Pause During Falls: Historically, SIPs started during crashes generate the highest long-term IRR. Stopping SIPs at the bottom destroys compounding.
4. Diversify Across Equity, Debt & Gold: In crashes, equity falls sharply, but gold and long-duration debt often stabilize or rise. Balanced asset allocation reduces panic.
5. Avoid Leverage and High-Risk Positions: Margin trades, options selling without hedges, or over-leveraged real estate positions can ruin portfolios in downturns.
6. Focus on Quality, Not Noise: Avoid trying to “time the bottom.” Use volatility to accumulate India-focused, earnings-driven, sector-diversified portfolios.
7. Prepare Mentally: Corrections of 20–30% are normal in long-term investing. Accepting this reduces panic and prevents premature exits
Closing Thought
History doesn’t repeat exactly — but it rhymes.
Crashes are painful for the unprepared, but they are the greatest wealth-creation events for those who stay disciplined.
