A lower circuit is triggered when a stock sees a significant negative reaction, often caused by unfavourable news, resulting in a panicked sell-off by investors. This mechanism halts the stock from declining beyond a certain predetermined percentage on a particular day visit us:- https://www.wrightresearch.in/blog/what-is-lower-circuit-in-share-market-and-how-to-sell-and-buy-stocks-in-a-lower-circuit/

1. In this article
Regulating Stock Market Volatility
What is a lower circuit in the share market?
Why do we have a lower circuit in the share market?
Reasons for Stocks Hiing the Lower Circuit
1. Market sentiment
2. Company-specific news and announcements
3. Liquidity issues
Lower circuit limits in the Indian Markets
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2. Share
A lower circuit is triggered when a stock sees a significant negative
reaction, often caused by unfavourable news, resulting in a panicked
sell-o by investors. This mechanism halts the stock from declining
beyond a certain predetermined percentage on a particular day. For
instance, if the lower circuit of a stock is established at 20%, no
additional selling is permied once the stock’s price plunges by 20%.
Stock markets are infamous for their inherent volatility, frequently
resulting in sizeable profits or losses for investors. Contemporary India
is witnessing a pivotal transformation in its investment scene, driven by
the burgeoning interest of the younger generation in stock trading. This
trend has ushered in a distinctive shift in the Indian stock market.
However, novice investors might find terminologies such as lower
circuits or upper circuits overwhelming and confusing due to the
scarcity and often deceptive nature of the available information.
Understanding the concept of circuits might not be as complicated as
rocket science, but it’s essential for investors to have a thorough
understanding before making informed choices. By the end of this
piece, you’ll have a solid grasp of lower circuits, what they are, how
lower circuits are implemented and most importantly, what to do when
you hold lower circuit stocks, how to sell lower circuit stocks and what
to consider if you are buying lower circuit stocks.
Circuit breakers & limits are pivotal in preserving stability and shielding
investors. Two types of circuit limits exist: stock-level and market-wide.
When a stock makes a dramatic move in any direction or reaches the
maximum price level permied for the day, it’s said to have "touched the
circuit." An upward swing activates the Upper Circuit, while a downward
shift triggers the Lower Circuit.
Regulating Stock Market Volatility

3. Circuit limits objective is to control market imbalances instigated by
price volatility. They operate as restrictions for specific stocks or
indices, temporarily suspending trading in the stock market upon
activation. This helps to mitigate extreme price swings triggered by
panic buying or selling of a specific stock.
A lower circuit in the share market refers to a mechanism used by stock
exchanges to prevent excessive selling in a particular stock. When a
stock hits its lower circuit limit, it means that the price of the stock has
fallen to its maximum allowed limit for the day.
Lower circuit stocks are those subject to circuit limits, which limit their
price movement. Put simply, these stocks have hit the lowest
permissible percentage by the stock exchange for price changes on a
given trading day.
Lower circuits play a vital role in curbing excessive downward
movement in stock prices. When a stock encounters considerable
selling pressure with few buyers, it may hit the lower circuit. The
specific level of the lower circuit is determined based on the prior day’s
closing price and may dier across stocks.
Generally, lower circuit stocks are associated with companies facing
financial troubles or other serious issues prompting investors to divest
their shares. Consequently, these stocks are more suitable for
investors with a high-risk appetite as their prices can be highly volatile
and subject to sudden slumps. However, they also bear the potential for
significant returns. Once a stock hits the lower circuit, no more sell
orders are allowed, and trading in that stock is temporarily halted for the
rest of the trading session. However, buy orders can still be placed, as
the purpose of the lower circuit is to limit selling activity, not buying.
What is a lower circuit in the share market?

4. Why do we have a lower circuit in the share market?
There are numerous reasons why stocks may plummet, ranging from
industry-wide selling to a ripple eect of index-wide ooading. The
decline could be sparked by unfavorable news related to a specific
stock, such as a halt in a company’s impending acquisition or the exit of
key senior management personnel. The decline could also result from
SEBI’s implementation of lower circuits aims to protect investors from
sudden and severe price declines that could result from panic selling or
adverse market conditions. By establishing a predefined percentage
threshold, the lower circuit prevents the stock from falling beyond that
limit on a single trading day. This mechanism acts as a safety net,
providing investors with a buer against extreme downward
movements in stock prices and avoiding potential losses.
Let’s look at an example. During the tumultuous market conditions on
January 24, 2022, there was widespread decline in Indian indices,
resulting in a significant impact on various stocks. ADANI GREEN, a
prominent market heavyweight, was one of the stocks severely
aected, with its price continuously hiing the lower circuit limit of 5%.
As a result, trading in the stock was halted for the entire trading
session. The presence of the circuit limit prevented further erosion of
the stock’s value, providing a safeguard against excessive panic selling
and mitigating potential losses. Without the circuit in place, the stock
could have experienced a more substantial decline in value, highlighting
the importance of such measures in volatile market situations.
Investors should approach lower circuit stocks carefully, taking into
account the associated risks and potential rewards. Grasping the
dynamics of lower circuit stocks can help investors make well-informed
decisions and navigate the complexities of the stock market.
Reasons for Stocks Hiing the Lower Circuit

5. A shortage of liquidity in the market for a specific stock can trigger a
lower circuit. This can happen when there aren’t enough buyers or
sellers to sustain a stable price for the stock.
Adverse news or proclamations related to the company, such as
disappointing financial results or significant legal complications,
incorrect synergy mix with a potential acquisition, poorly planned or
executed mergers, bankruptcy or loan payment defaults, expanding to
a new unknown market etc.
Negative market sentiment owing to a variety of factors can trigger
lower circuits. These factors could include political disturbance, global
economic conditions, geopolitical tensions, negative changes in
interest rates such as repo rate, reverse repo rate etc. domestically or
even internationally, changes in international or bilateral trade
agreements
substantial Asset Management Companies/ investors withdrawing
their stakes, or Domestic Institutional Investors DIIs) / Foreign
Institutional Investors FIIs) executing block trades. Moreover, the
possibility of manipulative tactics by market operators should not be
overlooked. The underlying cause could be varied, and by the time the
reason for the fall is discerned, the damage is often irreversible.
At its core, the primary force that drives a company to hit a lower circuit
is the interplay of supply and demand. However, several factors can
influence these forces and potentially drive a stock or index to hit lower
price thresholds. Reasons that may trigger lower circuits include:
3. Liquidity issues
1. Market sentiment
2. Company-specific news and announcements

6. Lower circuit limits in the Indian Markets
The lower circuit limit for a stock, is established by the exchange where
it is listed. It is determined by taking into account an array of factors,
such as the stock’s volatility, trading volumes, market capitalization,
and other relevant criteria.In the Indian stock markets, lower circuit
limits are implemented by the 2 major exchanges, BSE (Bombay Stock
Exchange) and NSE (National Stock Exchange), to keep a check on the
volatility of individual stocks. Lower circuit limits are pre-defined
percentage points, which if reached, halt trading for that particular
stock for the day.
When a stock hits its lower circuit limit, no further trades can take place
that day at prices below the limit. This mechanism provides a cooling-
o period for the market participants, preventing panic selling and
giving them time to make informed decisions.
There are also index level or market wide circuit breakers. These market
wide circuit breakers once breached for either BSE Sensex or the Nifty
50, whichever happens earlier will result in temporary suspension of
trading in all equity and equity derivative markets in India. The market
wide trigger limits are as follows -
PRE OPEN CALL
MARKET
TRIGGERAUCTION SESSION
TRIGGER TIMEHALT
LIMITPOST MARKET
DURATION
HALT
Before 1:00 pm.45 Minutes15 Minutes
1. For specific stock categories as per the rules of the exchange, stock circuit limits
(upper and lower) are usually set at 2%, 5% or 10%
2. No circuit limits for stocks that have derivative products or are part of the futures
and options (F&O) segment.
3. All other stocks including including debentures, preference shares etc. have a
stock circuit limit of 20%

7. 15%
10%
20%
At or after 1:00 pm
15 Minutes
upto 2.30 pm
At or after 2.30 pmNo halt
1 hour 45
Before 1 pm
minutes
At or after 1:00 pm
45 Minutes
before 2:00 pm
On or after 2:00Remainder of
pmthe day
Any time duringRemainder of
market hoursthe day
15 Minutes
15 Minutes
15 Minutes
Not applicable
Not applicable
Not applicable
This limit is typically expressed as a percentage of the index’s closing
price from the previous day. This pause allows the market to stabilize
before resuming trading. In this period, neither can buyers place bids
nor sellers oer their shares. Once the trading halt is lifted, trading
activity can recommence and market participants can place their
orders again.
We have understood what is lower circuit in share market, what are
lower circuit stocks and lower circuit stocks in the Indian markets. Let’s
figure out if you are holding stocks that have hit the lower circuit, then
how you can sell lower circuit stocks.
You cannot sell stocks that have hit the lower circuit until the circuit
limit has been removed. Navigating an exit from a lower circuit stock can
Selling Stocks that Have Hit the Lower
Circuit

8. If you anticipate a rise in the stock’s price, you could set a sell order at
the upper circuit limit. Consequently, once the circuit limit is removed,
your sell order is automatically executed, allowing you to sell your
stocks at a potentially higher price.
Usually, the lower circuit constraint is temporarily suspended after a
certain duration, which can range from a day to a week or more, subject
to the stock’s volatility. When the circuit restriction is lifted, the stock
can be freely traded, enabling you to potentially ooad your shares at a
more advantageous price.
A broker’s assistance can also be sought to locate a buyer for your
shares, even when the stock is trading at the lower circuit limit. It’s
important to remember, though, that this approach may entail
additional expenses, like a brokerage fee or commission.
The most practical and simple method of ooading a lower circuit
stock is to place a sell order during the pre-open session, specifically at
9 AM. The market operates on a first-come, first-served basis during
the circuit break, and an early placed order might facilitate the timely
sale of the stock. Thus, the pre-opening and After Market Order AMO
can assist in exiting the trade even when the market has hit the lower
circuit.
be a daunting task as it implies the stock is hiing its lower trading limit.
This results in a dearth of buyers in the market to purchase your stocks.
It’s recommended practice to exit lower circuit stocks, as extended
exposure could result in substantial losses as the stocks price
continues to fall.
3. Engage a Broker
1. Await Circuit Suspension
2. Initiate a Sell Order at the Upper Circuit Limit

9. Do a thorough analysis & examination of the company’s financial
indicators, including its revenue, profit margins, level of debt, and cash
flow. This review can indicate if the company possesses the potential
for growth and profit generation in the future. Consider the
management team’s experience and track record in the industry. If the
company’s fundamentals are robust and its management team has
consistently performed well, it could be a worthwhile long-term
investment despite the current lower circuit price.
Finding buyers is rare in lower circuit stocks, especially when there are
significant market/ stock specific events. However, you can buy stocks
that have hit the lower circuit. For those investors who've been
monitoring high-quality stocks but couldn’t invest due to steep
valuations, these lower price levels might present excellent buying
opportunities. As there are numerous sellers ready at the lower circuit,
buy orders are usually executed swiftly. There are few strategies that
can be considered when investing in stocks that have hit the lower
circuit -
Considering the market’s inherent volatility, trading in the lower circuit
is not unusual. The market is subject to frequent ups and downs. In
recent years, there have been numerous instances where the market
has taken a significant hit due to limit breaches. As such, even after
thorough research, if you find yourself stuck in the lower circuit, it’s
advisable to exit as promptly as possible by seing a sell order ahead of
time.
Buying Stocks that Have Hit the Lower
Circuit
2. Technical Analysis
1. Fundamental Analysis

10. Find out why the stock is hiing the lower circuit. This could be due to
poor financials, corporate governance issues, negative news flow, or
overall market pessimism. If it’s a systemic issue, then investing at this
stage could be risky.
When a stock hits its lower circuit limit, trading is halted for that day.
This is often a sign of significant negative sentiment towards the stock
or sector. Investing in stocks hiing their lower circuit limit can be a
high-risk, high-reward venture. But it requires careful consideration and
analysis of several key factors:
An alternative strategy involves studying the stock’s price movements
and chart paerns via technical analysis. This method involves
reviewing price trends, trading volumes, and other technical indicators
to spot paerns and predict future movements. Through this analysis,
you can determine whether the stock is oversold or undervalued, and if
it presents a good buying opportunity.
A contrarian investment strategy suggests investing in stocks that
other investors are currently avoiding. This approach involves looking
for companies experiencing temporary issues or negative press, which
has led to a decrease in their stock price.
Investing in lower circuit stocks entails both high risk and high potential
rewards. While these stocks can yield significant returns, it is crucial to
conduct thorough research and fully comprehend the associated risks
before making such investment decisions.
1. Reason for the Fall
3. Take a Contrarian View
2. Company Fundamentals
Factors to Consider Before Buying/ Selling
Lower Circuit Stocks

11. Investing in lower circuit stocks carries inherent risks. It’s crucial to
The general market trends and specific factors aecting the sector or
industry in which the company operates can greatly influence the
performance of lower circuit shares. Thus, a thorough analysis of
market conditions is necessary.
It is crucial to understand the broader industry dynamics. If the whole
sector is doing poorly due to regulatory issues, disruptive technology, or
cyclical downturns, then it might be beer to avoid investing.
Investigating the company’s financial health, competitive positioning,
and growth prospects is vital. These indicators help assess the viability
of the company’s business model and its capacity to generate
sustainable returns in the long run. If the company has heavy debt,
negative earnings, and poor cash flows, then it might continue to hit
lower circuits in the future.
Trading volumes can provide an insight into market sentiment and
investor interest. Low volumes might imply a lack of investor interest or
liquidity issues, while high volumes could indicate strong investor
demand.
If promoters or institutional investors are continuously decreasing their
stake in the company, it could be a red flag. It indicates their lack of
confidence in the company’s future prospects.
6. Trading Volumes
5. Market Conditions
4. Industry/Sector Outlook
7. Risk Management & Risk Tolerance
3. Promoter Holding & Institutional Ownership

12. An essential factor is determining whether the stock is under- or
overvalued based on various metrics such as earnings, cash flow, and
others. Comparing these valuations with industry peers can provide a
more realistic picture of the stock’s potential for profitability. Look at
the P/E ratio. A very high P/E ratio might indicate that the stock is
overvalued. However, a very low P/E ratio might be a sign of distress.
Other ratios like Price-to-Book value, Debt-to-Equity ratio, and Return
on Equity can give you a beer understanding of the stock’s value and
risks.
implement a solid risk management strategy, including using stop-loss
orders, maintaining portfolio diversity, and limiting the proportion of
capital allocated to lower circuit investments. Be mentally prepared -
only invest if you’re prepared to potentially lose your investment. These
are high-risk stocks.
The competence and integrity of the company’s management are vital.
If the management is involved in any fraudulent activity or if they lack
the capability to navigate through tough times, then the company
might struggle to recover.
Stocks hiing lower circuits often have low liquidity, making it diicult to
exit positions. Be sure you’re willing to hold the stock for the long term if
necessary. As with all things related to investing - diversification is key!
Don’t put all your eggs in one basket. Ensure this forms a small portion
of your portfolio to limit potential losses.
8. Stock Valuation
9. Management Quality
10. Liquidity & Diversification