Harshad Mehta and the Mirage of 1992.
How borrowed money built a stock market bubble that broke Indian retail investing
Every morning, a man in a crisp suit walked into the Bombay Stock Exchange, followed by a sea of hopeful eyes. People who had never owned a share began selling their family gold. They all wanted a piece of the magic broker who could turn any stock into gold.
To understand how the market crashed, we must look at how the money got there. It was not the savings of regular citizens that drove the boom. It was short-term money belonging to public banks, diverted through a maze of government bond transactions and paper receipts.
Brokers exploited loopholes in how banks lent cash to each other. They used fake receipts to pull out funds meant for government bonds, routing this cash directly into the stock market. This massive flow of borrowed money created an artificial rush for shares.
When you buy a house using entirely borrowed money, you feel wealthy. But you do not own the wealth; you only own the debt. When banks realized their cash was missing and demanded it back, the artificial demand vanished instantly, leaving regular investors holding empty bags.
A Tale of Two Shopkeepers
Imagine two identical tea stalls on the same street. The first owner runs his shop using only his own savings. The second owner borrows heavily from a local moneylender to buy fancy lights and tables. When times are good, the second shopkeeper looks incredibly successful, showing off his grand setup. But when the monsoon rains hit and customers stop coming, his monthly interest payments do not stop. The first shopkeeper survives the quiet months, while the borrowed setup of the second shopkeeper collapses under debt.
Why this matters
When you see a stock shooting up like a rocket, it is easy to feel left behind. But you must ask yourself: is the rise fueled by the business earning more money, or is it just market fever? If you invest using borrowed money, or buy assets just because others are buying, you are playing a dangerous game. Your hard-earned savings deserve the safety of real business value, not the temporary highs of cheap leverage.
Where people go wrong
- Believing prices will rise forever just because everyone is buyingNo asset rises forever without business growth. When the crowd rushes out, the late buyers are left with worthless paper.
- Borrowing money or using leverage to buy sharesDebt multiplies your losses when things go wrong. A small market drop can completely wipe out your lifetime savings.
- Following high-profile market gurus blindlyYou never know when a guru is using someone else's money. Always look at the real business earnings instead of the promoter's charm.
Never borrow money to buy stocks. Leverage turns a small mistake into a complete financial disaster.
Focus on company profits, not market noise. Only real business earnings create long-term wealth for your family.
Ignore the fear of missing out. It is far better to miss a rise than to lose your savings.
We do not buy because we understand the value; we buy because we see our neighbour getting rich. We believe we can always sell our mistakes to a greater fool before the music stops.