Why Sensex plunges today after hitting all time high?

The Sensex and Nifty experienced a significant downturn in Wednesday's trading session after initially reaching new all-time highs. The S&P BSE Sensex dropped by 930.88 points (1.30%), closing at 70,506.31, while the NSE Nifty 50 fell by 302.95 points (1.41%) to settle at 21,150.15. This marked the worst session for the Nifty 50 in nine months.

The market's positive start was driven by substantial gains in IT and consumer goods stocks. However, various factors contributed to the later downturn, including concerns about a resurgence of Covid-19 cases in India, the US, UK, and other parts of Asia.

One major factor behind the market reversal was heavy profit booking by investors, capitalizing on the recent strong performance in the stock market. Parth Nyati, founder of Tradingo, noted that euphoria turned into a market downturn, and several factors may have played a role in the sudden reversal. These factors include the buoyant primary market, tight liquidity among high net worth individuals (HNIs) involved in IPOs, and the recent rise in Covid-19 cases serving as a reason for some investors to exit.

Nyati mentioned that the Nifty is attempting to fill the gap formed around 21,000 after the US Federal Reserve's meeting, with the zone between 21,000 and 20,950 likely to act as strong support. For long-term investors, this dip could be seen as a potential buying opportunity, while traders are advised to remain cautious and wait for a clear direction to emerge.

Shrey Jain, Founder and CEO of SAS Online, pointed out various reasons for the sudden drop, including concerns about a potential bubble forming in the smallcap sector and worries about the Covid sub-variant JN.1 in India. However, he emphasized that it's important not to label this as a market crash and encouraged investors to focus on the long-term outlook rather than reacting to short-term fluctuations.