The first Indian stock market crash also had a US connection. Check inside

The Indian stock market experienced one of its steepest single-day declines on April 7, as both benchmark indices — Sensex and Nifty 50 — plunged over 3%. The bloodbath on Dalal Street was triggered by a global market meltdown, driven by concerns over the US President Donald Trump’s tariff policies and growing fears that an extended trade war could push the global economy toward a recession.

When we talk about stock market crashes in India, the infamous Harshad Mehta scam of 1992 or the global financial meltdown of 2008 often come to mind. But few know that India witnessed its first-ever stock market crash way back in 1865 — nearly 150 years ago. And interestingly, it had a strong American connection.

The Bubble That Grew Too Fast

The backdrop of the crash was the American Civil War (1861-1865). During this period, the cotton supply from the Southern United States to Britain was cut off due to the war. As a result, Bombay (now Mumbai) became a key supplier of cotton to British textile mills, leading to an unprecedented boom in cotton exports.

This sudden demand surge led to soaring cotton prices. Bombay’s business community — largely made up of traders and speculators — jumped into action. The Bombay cotton market exploded, and the ripple effect was seen in the local stock market as well.

In those days, India didn’t have a formal stock exchange like today’s Bombay Stock Exchange (BSE) or National Stock Exchange of India (NSE). But trading was happening informally — mainly in the form of shares of banking, trading, shipping, and insurance companies. As the cotton boom escalated, share prices of companies — some of which had been established only a few years earlier — rose to unsustainable levels.

For instance, shares of the Back Bay Reclamation Company, with a face value of ₹5,000, reportedly traded at an astonishing ₹50,000, reports said. Similarly, Bank of Bombay shares, originally valued at ₹500, surged to ₹2,850.

When the War Ended, So Did the Dream

The euphoria lasted till April 1865 — when the American Civil War ended. With peace restored, cotton supply from the US resumed, and British buyers no longer needed to depend on Indian cotton.

Suddenly, the inflated cotton prices began to fall. And so did the speculative bubble in Bombay. Investors who had borrowed heavily to bet on stocks and cotton prices were caught off guard. Panic set in. The market crashed. Fortunes were lost overnight.

The collapse was as dramatic as the rise. Back Bay Reclamation Company shares, which had soared to ₹50,000, plummeted to below ₹2,000 — a decline of over 96%, according to reports. Likewise, shares of the Bank of Bombay, which had peaked at ₹2,850, reportedly fell to just ₹87, wiping out significant investor wealth.

Real Estate and Bankruptcies Followed

It wasn’t just the stock market. Bombay’s real estate sector also collapsed, as prices had gone up in tandem with the cotton boom. Banks, brokers, and merchants who had extended easy credit found themselves exposed to huge defaults.

By mid-1865, thousands of investors had gone bankrupt, and the city’s economy took a massive hit. The episode is often referred to as the “Share Mania of 1865.”

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