What are Lower Circuit Stocks? How to Identify Lower Circuit Stocks in NSE
The lower circuit is the lowest spot at which a stock’s price or an index’s value can go. Stocks with high demand for sales but low demand for purchases may fall into the lower circuit stocks category. In this blog, we will explore what is lower circuit in the share market, how they work, what triggers them and how to sell stocks in lower circuit. Moreover, we will also tell you the factors and strategies you should consider while investing in lower circuit shares.
What is a Lower Circuit In The Share Market?
Lower circuit stocks are stocks that are subject to a circuit limit or circuit filter that restricts their price movement. In simpler terms, the prices of these stocks can go down to the minimum percentage allowed by the stock exchange for that particular trading day.
These stocks are usually stocks of companies that are facing financial distress or other significant issues that are causing investors to sell off their holdings.
Consequently, today’s lower circuit stocks can be suitable for investors with high-risk tolerance, as their prices can be volatile. However, they also have the potential for good returns.
List of the Top 5 Lower Circuit Stocks
Check out today lower circuit stocks list below:
Lower Circuit Stocks on NSE
| Stock Name | LTP | Change % |
|---|---|---|
| Suzlon Energy Ltd | ₹58.88 | -4.94 |
| Cochin Shipyard Ltd | ₹1518.35 | -5.00 |
| JSW Holdings Ltd | ₹17,080.05 | -3.86 |
| Transformers and Rectifiers (India) Ltd | ₹1200.30 | -3.14 |
| Reliance Power Ltd | ₹43.51 | -5.00 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the top lower circuit stocks in India in the list is from 6th January, 2025. However, for real-time updates on lower circuit stock prices and market trends, visit the smallcase stocks collection today!
Top Lower Circuit Stocks in India: Overview
Let’s have a look at the best lower circuit stocks today in the Indian stock market.
Suzlon Energy Ltd
Suzlon Energy is a leading renewable energy solutions provider specialising in wind energy. The company has made significant strides in the renewable sector, supported by robust financial management. Over the last five years, its debt-to-equity ratio has been -120.32%, substantially better than the industry average of 764.81%, showcasing strong control over leverage. Additionally, its current ratio of 120.62% outperforms the industry average of 112.74%, reflecting its superior short-term liquidity.
Cochin Shipyard Ltd
Cochin Shipyard Ltd is one of India’s largest shipbuilding and repair companies, catering to both domestic and international markets. The company’s financial metrics underscore its efficiency, with a current ratio of 163.44% over the last five years, significantly above the industry average of 91.82%. Furthermore, its net profit margin of 18.92% highlights its ability to convert revenue into profits effectively.
JSW Holdings Ltd
JSW Holdings operates as a core investment company, playing a pivotal role in the JSW Group’s financial ecosystem. The company’s financial strength is evident from its stellar current ratio of 877.41%, well above the industry average of 155.81%, showcasing its exceptional liquidity. Additionally, its net profit margin of 91.74% over the last five years positions it as one of the most profitable entities in its segment.
Transformers and Rectifiers (India) Ltd
Transformers and Rectifiers (India) Ltd specialises in the manufacturing of transformers for diverse applications across industries. The company has demonstrated strong financial performance, with a current ratio of 147.02% over the last five years, exceeding the industry average of 125%. Its impressive 5-year CAGR of 176.27% highlights its consistent growth trajectory.
Reliance Power Ltd
Reliance Power focuses on generating electricity through renewable and non-renewable energy sources. The company’s growth is reflected in its 5-year CAGR of 67.73%, a testament to its ability to expand consistently. Additionally, its cash flow margin of 30.75% underlines its operational efficiency in managing cash resources.
For investors wondering how to sell shares in lower circuit, it’s crucial to plan carefully and stay informed about the market conditions.
Why Do We Have a Lower Circuit in the Share Market?
The lower circuit in the share market is implemented as a regulatory mechanism to mitigate excessive downward price movements, thereby safeguarding investor interests against extreme volatility. When a stock reaches its predetermined lower circuit limit, trading is automatically suspended. This regulatory measure effectively controls panic selling, providing investors with time to assess information thoughtfully and make informed decisions. It also ensures orderly market behaviour, preventing the potential turmoil caused by rapid price decreases. Understanding the lower circuit meaning is crucial for navigating volatile markets effectively.
How is the Lower Circuit Limit Determined?
Now that you know what lower circuit means, here’s how the limit is determined. It can be based on various factors, such as the volatility of the stock, trading volumes, market capitalisation, and other relevant factors. The stock exchange typically sets the NIFTY lower circuit limit as a percentage of the stock’s previous closing price.
How Does Trading in the Lower Circuit Stocks Work?
When a lower circuit in the share market is triggered, trading in the stock is usually halted for a certain period, typically 15-20 minutes, allowing the market to stabilise before trading can resume. During this period, only buyers can place bids, and sellers might not be able to offer their shares for sale. Once the circuit limit is lifted, trading in the stock resumes, and buyers and sellers can maybe place their orders again.
For example, if a lower circuit share today of 5% is established, a lower circuit stock’s price cannot drop by more than 5%. This may happen during a single trading session. Consequently, once the stock reaches this lower circuit, trading in the stock might be suspended for 15-20 minutes. If you’re checking the lower circuit stock list today, understanding these dynamics is essential.
How to Invest in Lower Circuit Stocks?
Investing in lower circuit stocks requires careful consideration due to their limited liquidity and potential risks. Here are steps to keep in mind if you’re interested in such investments:
- Thorough Research: Once you’ve understood what is lower circuit in stock market, begin with comprehensive research on the company behind the lower circuit stock. Analyse its financial health, business model, management team, and future prospects.
- Risk Evaluation: Recognise the unique challenges that might be associated with lower circuit stocks. They can be highly volatile and illiquid, making it challenging to buy or sell shares.
- Consult Financial Advisors: Consider consulting with a qualified financial advisor or stockbroker experienced in dealing with such stocks. Their expertise can provide valuable insights and guidance.
- Active Monitoring: Stay vigilant regarding your investments. Lower circuit stocks can remain locked for extended periods, necessitating continuous awareness of company developments and industry news.
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What are the Factors That Can Trigger Lower Circuits?
Here is a list of factors that can trigger lower circuit in stock market.
- News and Announcements: Negative news or announcements related to the company, such as poor financial results or a major legal issue, can trigger a lower circuit by leading to a sell-off of the company’s shares.
- Liquidity Concerns: Lack of liquidity in the market for a particular stock can trigger a lower-circuit in stock market. There may not be enough buyers or sellers in the market to maintain a stable price for the stock.
- Market Sentiment: Negative market sentiment due to various factors can trigger lower circuits. Some of these factors are political instability, global economic conditions, and geopolitical tensions,
- Technical factors: Technical factors such as support and resistance levels, moving averages, and trend lines can trigger a lower circuit in share market if the stock price breaches key technical levels.
What are the Factors to Consider While Investing in Lower Circuit Stocks?
Investing in a list of lower circuit stocks today can be a good option. However, here are some factors that you should consider while investing in them:
- Reason for the Stock’s Decline: Is the decline due to a temporary event, such as a negative news release or a sell-off in the broader market? Or is it due to more fundamental problems with the company?
- Company’s Fundamentals: Even if the stock has declined for a good reason, it’s still important to assess the company’s fundamentals before investing. This includes looking at the company’s financial performance, management, and competitive position.
- The Stock’s Valuation: Is the stock trading at a discount to its intrinsic value? If so, it could be a good opportunity to buy.
- Risk Tolerance: Lower circuit stocks entail greater inherent risk compared to other stocks, so you should be ready for the potential of additional losses.
Benefits of Lower Circuit Stocks NSE
Some potential benefits for experienced and risk-tolerant investors have been listed below:
- Opportunity for Bargain Hunting: Investors who believe the price drop is temporary and the company has strong fundamentals can potentially buy shares at a significant discount.
- Short-Term Trading Opportunities: The volatility of lower circuit stocks can create opportunities for short-term trading strategies like scalping or day trading. Thus, skilled traders can potentially generate quick profits.
- Hedging Strategies: Lower circuit stocks can be useful for investors who want to hedge their portfolios against broader market downturns. By buying puts or selling short on lower circuit stocks, investors can potentially limit their losses in a declining market.
- Increased Trading Volume: The sudden price drop and trading halt may attract attention, leading to increased trading volume once the stock resumes trading in the next session. This can be beneficial for investors who want to exit their positions or take advantage of potential price rebounds.
- Speculative Potential: For highly speculative investors, lower circuit stocks can offer high-risk, high-reward opportunities. If the underlying company experiences positive news or developments, the price can rebound quickly.
Challenges Associated with Lower Circuit in Share Market
Here is a list of potential challenges faced while investing in lower circuit stocks.
- Limited Liquidity: Trading suspension restricts buyers and sellers, hindering price discovery and making it difficult to exit positions.
- Amplified Volatility: A lower circuit can trigger panic selling, leading to further price drops and exacerbating market volatility.
- Missed Opportunities: Investors may miss out on lucrative buying opportunities if they cannot enter the market during the circuit break.
- Market Manipulation: Unscrupulous actors may exploit lower circuit mechanisms for manipulative short selling or price manipulation.
- Loss of Investor Confidence: Frequent lower circuits can erode investor confidence in the market’s stability and transparency.
How to Exit From Lower Circuit Stock?
Exiting from a lower circuit stock can be challenging because the stock is trading at its lower circuit limit, indicating that there are no buyers available in the market to purchase the stock from you. However, here are a few tips on how to sell stock in lower circuit:
- Wait for the Circuit to Lift: The stock market’s lower circuit is typically removed after a set period, which could be a day, a week, or more, based on the stock’s volatility. When lower circuit opens, the stock can trade without restrictions, potentially allowing you to sell your shares at an improved price.
- Place a Sell Order at the Upper Circuit Limit: If you’re confident that the stock’s price will rise, you can place a sell order at the upper circuit limit. This way, when you lift the circuit, the system will automatically execute your sell order.
- Seek Help From a Broker: You can also seek help from a broker who can help you with how to sell lower circuit shares, even if the stock is trading at the lower circuit limit. However, this may come at a higher cost, such as a brokerage fee or commission.
Who Should Explore in Lower Circuit Stocks?
Investing in these stocks suits a specific investor profile due to the high risk and potential for significant returns. Ideal investors for lower circuit stocks are those with a high-risk tolerance. Such individuals are usually comfortable with the market’s inherent unpredictability and can handle potential financial losses without detrimental effects on their overall finances. Additionally, these investors typically have a long-term investment horizon, allowing them to wait out the volatility and potential downturns in the market to realise gains when the stocks recover.
Knowledge of the market and its mechanisms is also crucial for those investing in lower-circuit stocks. Advanced investors who can analyse market trends, understand the reasons behind a stock hitting its lower circuit, and make informed decisions based on comprehensive research are more likely to succeed. They often employ contrarian strategies, buying stocks when they are out of favour and waiting for a turnaround.
In conclusion, lower circuit stocks are not suitable for everyone; they are best for those who are well-informed, patient, and financially equipped to endure the ups and downs of the stock market.
To Wrap It Up…
Lower circuit stocks can be a high-risk, high-reward investment. Once you’ve understood the lower circuit stocks meaning, it’s important to do your due diligence and understand the potential risks involved. Furthermore, to achieve well-balanced portfolios that capitalise on such market phenomena, consider investing smallcase. It provides investors with a selection of curated investment portfolios designed based on specific themes and investment strategies.
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FAQs
The meaning of lower circuit in share market represents the highest percentage decline in a stock’s price within a single trading session. When a stock reaches its lower circuit, trading in that specific stock can be momentarily halted.
The five best lower circuit stocks are listed as follows:
– Suzlon Energy Ltd
– Cochin Shipyard Ltd
– JSW Holdings Ltd
– Transformers and Rectifiers (India) Ltd
– Reliance Power Ltd
Note: This information is provided for educational purposes and is not intended as a recommendation or endorsement.
After a stock triggers the lower circuit, it becomes prohibited to place additional sell orders, and trading in that particular stock is suspended for the remainder of the trading session. Nevertheless, it might be still possible to enter buy orders because the lower circuit intends to restrict selling, not buying.
No, you cannot sell shares in a lower circuit. When a stock hits the lower circuit, trading is halted for the remainder of the trading session, preventing further selling. Investors should comprehend both the growth potential and challenges confronted by agricultural companies.
When a stock reaches its lower circuit price, only sellers NSE dominate the market, and buyers are scarce. This may lead to an automatic conversion of the intraday trade into a delivery trade.
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