Black Monday saw the Dow fall by 508 points or 23 per cent to 1,739. This fall, however, was not restricted to the US alone. By the end of the month markets in Hong Kong, Australia, the UK and Canada were down between 22 and 46 per cent.

During this period, the Sensex stayed put at 461. By the end of the month, it was down by a statistically insignificant 2 per cent, based more on where the Bofors controversy would end and what it would do. And, of course, whether Dhirubhai Ambani would win the chemicals war (if he did, Reliance would rise and take the Sensex up; if not, the Sensex would fall). Global factors didn’t matter.

The next global crisis erupted in December 1994, soon after Ernesto Zedillo became Mexico’s president and within two weeks orchestrated a ‘megadevaluation’ of the Mexican Peso — what began with a 13 per cent fall on December 20, ended the month by falling another 15 per cent; in the next four months, the Peso had halved. The herd of global investors stampeded out of Mexico, and global markets faced the spillover — from Argentina, Brazil and Chile to Philippines and Poland, one market after another crashed.

The Sensex fell by 14 per cent to 3,356. But not because of Mexico. This fall was more due to fears of interest rate rises that RBI had planned that would make stocks less attractive than bonds. Besides, even as global markets picked up following US government intervention in Mexico, it took the Sensex 17 months to recover. Clearly, India was following its own story, though a small crack had opened up because of FII investments.

... contd.