Greece and Italy veered toward bankruptcy, and the United States suffered its first-ever credit-rating downgrade (S&P's AAA to AA+). Foreign investors sold from the very first sessions of the year, grinding the Indian market down roughly 20% over the calendar year.

There was no Lehman-style crash day — no single headline. The lesson was that crashes do not need one event: sustained FII selling can bleed the market lower all year long.

A dealer at a brokerage — Emkay/MK Global per reporting — was asked to sell a block for a foreign client, but instead of selling 50 lakh shares, sold 50 lakh baskets, each basket being the entire Nifty 50 in index weights. The Nifty crashed roughly 15%, or about 1,000 points, in seconds — so fast that the 10% circuit breaker could not trigger in time.

The tell that it was an error: Nifty futures fell only 3–4%, trading at a near-1,000-point premium, because traders knew no real news could justify so large a drop. The trades were reversed and the market recovered the same day. The cash index had crashed 15%... and nothing had actually happened.

When Fed Chairman Ben Bernanke signalled the end of quantitative easing, emerging markets crashed. In India the Nifty fell about 20% (from roughly 6,200 to 5,100), individual stocks dropped 40–50%, the rupee collapsed to 69 to the dollar, and FIIs fled. Finance Minister Chidambaram hiked the gold import duty from 1% to 10% to defend the currency.

It was India's most feared macro combination — a double-digit index crash with a currency crisis attached — and the definitive 'when the Fed sneezes, India catches a cold' event.

With the Nifty down 18–20% and panic everywhere, one morning the market opened down another 2% — then, in the second half, a huge burst of buying carried it from -2% to +4% in a single session. Reports attributed the buying to LIC entering the market.

That day's low was never tested again. From around 5,100, the Nifty rallied about 80% over the next two years. It remains the most famous 'domestic institution saves the market' moment — the counterweight to every FII-selling panic since.