Circuits in Market and Rules of Lower Index Circuits

Circuits are there in the market to prevent immediate downfall or upside movement of any Share and Index. These circuits are stock dependent and vary from category to category which restrict the price of the share beyond which it cannot be traded in a day. There are two type of circuits in the market-

1. Upper Circuit - As it name suggests, Upper Circuit is the higher limit of Share price or Index value above which it cannot be traded on a particular day. Basically, it is calculated for each day based on the closing price of immediate previous trading day.
2. Lower Circuit - It is the lowest limit of Share price or Index value below which it cannot be traded on a particular day. Basically, it is calculated for each day based on the closing price of immediate previous trading day.

Rule of Circuits in Index (BSE and NSE)

Last Friday, Just after opening the market, Nifty touched lower circuit of 10% and there was no trading in the market for 45 mins. If this lower circuit went lower to 15% and 20% respectively then there would be different time of suspended trading. Let us see below table and then understand the rule of lower circuits in Index and it's impact on the trading-



Markets will be closed temporarily for 45 mins with a 15 mins re-opening session when lower circuit of 10% hits the index. Similarly, Market will be halted for 105 mins and complete day when lower circuit in the index hits at 15% and 20% respectively.

History reveals that whenever there was a lower circuit hit the index then market bounced back after re-opening session and same had happened last Friday when both the Index (Sensex and Nifty) hits lower circuit of 10% just after opening at 9:20 AM. Market opened again at 10:20 AM and bounced back and recovered 5% in just 5 mins. Market even fly green last Friday amid a strong bounce back.

As a retail investor you should see this as a temporary up-move and you should be cautious with future trading sessions as market is going with the weak sentiments amid Corona-virus disease Covid-19. Invest your hard earned money in the market in small chunks, I must say Rs. 100 per day if you have Rs. 1000 with the right opportunity (Corrected price).

Invest wisely your hard earned money and always have a long term horizon if you want to be a successful equity investor. If you have any question or doubt, please leave a comment.

Happy Learning !!!