Why Nifty 50, Sensex crashed on Wednesday:Wednesday was a day full of drama in the Indian market. Both Sensex and Nifty reached new heights during the opening session. But after that the market took a big U-turn downwards and both the major indexes witnessed a huge decline. During the day’s trading, the Sensex fell by more than 800 points for some time. Nifty also went down by more than 1 percent during the trading session. This decline caused panic among retail investors. A lot of stampede was also seen in the smallcap and midcap index. The major reasons responsible for the decline in Sensex and Nifty on Wednesday are as follows:
1. High valuations
Since the elections, the buying by retail investors, domestic mutual funds and FIIs has increased, which has led to a boom in the market. In such a situation, after the Sensex crossed 80,000, many investors have started feeling that the market is now getting overvalued. Those who do not find the index’s valuation to be very high are also seeing many individual stocks with high valuations. In such a situation, buying is decreasing at higher levels. The sudden fall on Wednesday after reaching new highs is an indication of this.
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2. Estimates related to earnings season
There is an expectation that the pace of growth will slow down in the earnings season of the June quarter. In such a situation, many investors are adjusting their portfolios according to these expectations. The impact of better results of the last few quarters has already taken the market to new heights, after which if the results are average, then there may be scope for correction.
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3. Profit booking
Nifty 50 has given a return of 12 percent so far this year. The level of profit in many stocks coming in small and medium cap is even higher. Therefore, many investors are in the mood to book profits whenever they get a chance. Although there is a recovery after every fall, the sentiment of profit booking is also increasing.
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4. There has been too much shopping
Many market experts also believe that currently there is a lot of buying in the market, due to which the market is in an overbought state. Due to this, many investors are now not in the mood to take long positions aggressively.
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5. US Fed impact
On Wednesday, the sentiment of investors in the market was also affected by the statement made by US Fed Chairman Jerome Powell last night, in which he said that in the current environment, a reduction in interest rates is not possible until it is believed that the inflation rate is moving towards 2 percent. However, along with this, the Fed has also expressed concern that keeping interest rates at a high level for a very long time can pose a threat to economic growth. New inflation rate figures are to be released in the US on Thursday, which will determine the direction of the US Fed’s strategy in the month of September.