circuit limit in stock market
Circuit limit in the stock market is the maximum price range allowed for an asset in a trading session. A circuit limit is imposed on assets and indices to avoid extreme price volatility and ensure orderly stock market trading. Circuit limits ensure safety in investments during periods of high market volatility or any overnight events. It prevents asset prices from moving violently and enables a sense of security for invested money.
Imagine, Investwild as a listed company that trades at 1000 Rs. Because of negative news, the stock reopened the next day at a gap-down opening of 90% at 100 Rs.In this situation, there is no safety for our invested amount. To prevent that, SEBI introduced circuit limits in stocks and indices to safeguard investors’ money.
What is an upper circuit?
The upper circuit is the limit in which the price of an asset can move up intraday. If a stock hits the upper circuit limit, it indicates significant demand for the stock, and trading in the stock will be halted temporarily. During this halt, investors can place buy orders, but there is a very low probability of them getting executed.
Circuit limits may vary according to the stock exchange, stock, and market segment. Based on the price range, market capitalization, and volume, different stocks will have different upper circuits and lower circuits.
What is a lower circuit?
The lower circuit is the price limit in which the price of an asset can move down in a trading session. If a stock hits its lower circuit limit, it clearly indicates significant selling pressure on the stock, and trading in the stock is temporarily halted.
Lower circuit limits help to prevent excessive price volatility due to negative news and reduce the possibility of market manipulation. Different stocks will have different lower circuit limits depending on the market capitalization, volume, and stock price.
Understanding The Circuit Limit In An Index
The Nifty 50 index is India’s National Stock Exchange (NSE) benchmark index. Trading sessions in the index will be halted if there are significant volatile movements in the market due to any events or uncertainty. The circuit limits for the Nifty 50 are as follows:
| LIMIT | TIME | MARKET HALT DURATION |
| 10% | Before 1:00 pm. | 45 Minutes |
| At or after 1:00 pm upto 2.30 pm | 15 Minutes | |
| At or after 2.30 pm | No halt | |
| 15% | Before 1 pm | 1 hour 45 minutes |
| At or after 1:00 pm before 2:00 pm | 45 Minutes | |
| On or after 2:00 pm | Remaining Trading session | |
| 20% | Any time during market hours | Remaining Trading session |
10% Trigger limit
- If the index moves up or down by 10% before 1:00 pm, a trading halt of 45 minutes is imposed.
- If the index moves up or down by 10% at or after 1:00 pm upto 2.30 pm, a trading halt of 45 minutes is imposed.
- If the index moves up or down by 10% at or after 2.30 pm, there will not be any suspension or trading halt.
15% Trigger limit
- If the index moves up or down by 15% before 1 pm, the trading will be halted for 1 hour 45 minutes.
- If the index moves up or down by 15% at or after 1:00 pm before 2:00 pm, trading will be suspended for 45 Minutes.
- If the index moves up or down by 15% On or after 2:00 pm, the trading will be halted for the rest trading session.
20% Trigger limit
- Trading will be suspended for the remaining trading sessions if the index moves up or down 20 % during market hours.
Understand Circuit Limit In Stocks
Circuit limits in stocks may vary from one stock to another. It depends upon the class or the group of the stock. Stocks are classified into different types, mainly A, B, T, S, and Z.
‘A’ Group stocks
‘A’ group stocks have the highest trading volumes and the most liquidity among all the listed shares. A Group stock includes Tata Motors, MRF, etc. ‘A’ group or class stocks have a circuit limit of –
- Upper Circuit Limit of 20%
- Lower Circuit Limit of 20%
‘B’ Group Stocks
stock classified as ‘B’ group shares has fewer voting rights and a lower dividend priority than ‘A’ group shares. ‘B’ Group shares include Aditya Birla Money, Alok Industries, etc. ‘B’ Group shares have a circuit limit of-
- Upper Circuit Limit: 20%
- Lower Circuit Limit: 20%
‘T’ Group Stocks
Settlements for stocks in the “T” group are made on a trade-to-trade (T2T) basis. ‘T’ Group Stocks are not considered for intraday trading. ‘T’ Group shares include Silicon Valley, Thangamayil, etc.’T’ Group shares have a circuit limit of-
- Upper Circuit Limit: 5%
- Lower Circuit Limit: 5%
‘S’ Group Stocks
The volume and liquidity of ‘S’ group shares are comparatively low. This category includes small and medium-sized businesses. ‘S’ Group shares include Alembic Glass, Casil Health, etc. ‘S’ Group shares have a circuit limit of-
- Upper Circuit Limit: 5 – 10%
- Lower Circuit Limit: 5 – 10%
‘Z’ Group Stocks
Companies that don’t meet the exchange’s listing requirements or haven’t arranged for dematerialization with both depositories are categorized under ‘Z’ group shares. ‘Z’ Group shares include Ace Labs, ABL Biotech, etc. ‘Z’ Group shares have a circuit limit of-
- Upper Circuit Limit: 5%
- Lower Circuit Limit: No lower circuit limit
