What are Lower Circuit Stocks? How to Buy & Sell Shares during Lower Circuit

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 the world of lower circuit stocks today NSE, including what they are, how they work, what triggers them and how you can sell them. Moreover, we will also tell you the factors and strategies you should consider while investing in lower circuit shares.

What is Lower Circuit Stock?

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, these lower circuit stocks today 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 %
Integra Essentia Ltd	₹6.15	-6.78 (-2.20%)
Narmada Agrobase Ltd	₹21.80	-6.03 (-1.40%)
Akshar Spintex Ltd	₹6.50	-5.11 (-0.35%)
Zenith Exports Ltd	₹151.60	-4.98 (-7.95%)
Emami Realty Ltd	₹132.55	-4.50 (-6.25%)

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note: The data on the top lower circuit stocks in India in the list is from 23rd April 2024.  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 in the stock market in India. 

KM Sugar Mills

KM Sugar Mills is a prominent sugar manufacturing company based in Maharashtra, India. With a focus on producing high-quality sugar products, the company has established a strong presence in the industry through its efficient operations and commitment to quality.

Atal Realtech

Atal Realtech is a leading real estate company known for its expertise in land acquisition, development, and construction projects. Based in India, the company has a track record of delivering innovative and sustainable real estate solutions that cater to the diverse needs of its clients.

Lypsa Gems

Lypsa Gems is a renowned gemstone and jewellery manufacturing company headquartered in Mumbai, India. Specializing in crafting exquisite gemstone jewelry, the company is known for its exceptional craftsmanship and unique designs that appeal to a wide range of customers.

TPL Plastech

TPL Plastech is a well-established plastic manufacturing company that produces a variety of products including packaging materials, pipes, and fittings. With a focus on quality and innovation, the company has earned a reputation for delivering reliable and sustainable plastic solutions to its customers.

Solara Active

Solara Active is a leading renewable energy company specialising in solar power generation. With a commitment to sustainability and clean energy solutions, the company plays a significant role in promoting environmental consciousness and reducing carbon footprint through its innovative solar energy projects.

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. These limits are established as specific percentages that prevent the stock from further decline within the trading session.

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. By temporarily halting trading, the lower circuit mechanism stabilises the market during periods of significant fluctuations, thereby maintaining investor confidence and upholding the integrity of the financial markets.

How is the Lower Circuit Limit Determined?

A circuit limit is a mechanism used by stock exchanges to control extreme price movements in a particular stock. In India, the Stock and Exchange Board of India (SEBI) introduced the concept of the upper circuit and today’s lower circuit stocks to safeguard the interests of investors. 

The lower-circuit limit for a stock is determined by the stock exchange on which it is listed. It can be based on various factors, such as the volatility of the stock, trading volumes, market capitalization, 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.

However, when the trading of stocks in the lower circuit resumes, there is usually a rush of buy orders, as investors might be looking to buy the stock at a lower price. This can lead to a sudden increase in the stock’s price. However, the stock’s price movement is still subject to the upper circuit limit, which restricts the stock’s price rise to a certain percentage in a single trading session.

For example, when a lower circuit 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. Thus, this may allow the market to stabilise before trading can resume.

Features of Lower Circuit Stocks

Here is a list of features of lower circuit stocks in NSE. 

• Significant Price Drop: By definition, a lower circuit stock may experience a substantial decline in its price. Within a single trading session, often reaching the pre-defined minimum threshold set by the exchange.

• Trading Suspension: Once the lower circuit is triggered, trading in that specific stock is automatically halted for the remaining trading session. This may prevent further panic selling and stabilise the market.

• Possible Reasons for Lower Circuit: Various factors can trigger a lower circuit. This may include negative news about the company, broader market downturns, selling pressure from institutional investors, or technical factors like breaching support levels.

• Volatility and Risk: Lower circuit stocks are generally considered highly volatile and can carry significant risk. Therefore, this sudden price drop can lead to substantial losses for investors.

• Limited Trading Opportunities: Due to the trading suspension, investors may have limited opportunities to buy or sell the stock. This can create frustration and limit potential profits or minimize losses.

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: Begin with comprehensive research on the company behind the lower circuit stock. Analyze its financial health, business model, management team, and future prospects.

• Risk Evaluation: Recognize 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.

• Start Conservatively: If you decide to invest, begin with a small allocation of your portfolio. Avoid committing a significant portion of your capital to a single lower circuit stock.

• Use Limit Orders: Employ limit orders when trading lower circuit stocks. This allows you to specify the price at which you’re willing to buy or sell, guarding against unexpected price swings.

• 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.

Moreover, you can also explore buying stocks in the lower circuit through platforms like smallcase. This approach allows for a diversified entry into this volatile segment. Let’s delve into how you can effectively utilise smallcase for investing in lower circuit stocks!

How to Invest in Lower Circuit Stocks via smallcase?

Investing in lower circuit stocks through smallcase, a platform that offers a basket of stocks based on a specific theme or strategy, follows a similar process as investing in individual stocks. Here’s how you can do it:

• Choose a smallcase: First, log in to your smallcase account or create one if you don’t have one already. Browse through the available smallcases and select one that includes lower circuit stocks or aligns with your investment goals.

• Research the smallcase: Before investing, thoroughly research the smallcase you’ve chosen. Understand its theme, strategy, and the stocks it comprises. Pay close attention to today lower circuit shares, included in the smallcase. Investigate why they are part of the strategy and whether you are comfortable with the risks associated with them.

• Review Historical Performance: Evaluate the historical performance of the smallcase, including how it has performed during periods of market volatility or when lower circuit stocks were involved.

• Investment Amount: Decide how much you want to invest in the chosen smallcase. You can typically choose from various investment amounts, depending on your budget and risk tolerance.
• Place the Order: Once you’re ready to invest, place an order for the smallcase. Follow the steps on the platform to initiate the purchase.

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.
• Your 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.

Strategies for Investing in Lower Circuit Stocks

Here are three strategies you may consider to make an informed decision while investing in lower-circuit shares:

Fundamental Analysis for Lower Circuit Stocks

One approach is to analyze the company’s financials, including its revenue, profit margins, debt, and cash flows. By looking at the company’s fundamentals, you can determine if it has the potential to grow and generate profits over time. 

Additionally, if the company has strong fundamentals and the management team has a history of success, it may be a good long-term investment, despite the current low circuit price.

Technical Analysis for Continuous Lower Circuit Stocks

Another approach is to look at the stock’s price movements and chart patterns. Technical analysis involves examining price trends, trading volumes, and other technical indicators to identify patterns and trends. 

This can assist you in assessing whether the stock is experiencing overselling or undervaluation. This may also highlight whether it’s an opportunity to make a purchase.

Contrarian Approach for Lower Circuit Stocks

A contrarian strategy is to take a contrarian approach and invest in companies that others may avoid. This approach involves looking for companies that might be experiencing temporary setbacks. Or negative news that has caused the stock price to drop. 

By investing in these stocks, you can take advantage of the market’s pessimism and profit when the stock rebounds. However, it’s important to do your own research or consult a financial advisor before investing.

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 manage selling stock in the 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. Once the circuit is lifted, 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 find a buyer for your 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 Invest in Lower Circuit Stocks?

Lower circuit stocks, known for their volatility, often hit their downside limit, halting trading when prices fall too steeply. Investing in these stocks is suitable for 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 are capable of handling 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. While investing in these stocks can offer good returns, it’s important to do your due diligence and understand the potential risks involved. You can also follow the strategies discussed in this blog and use lower circuits to your advantage.

Furthermore, to achieve well-balanced portfolios that capitalize 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.

So, what are you waiting for? Start your investment journey with smallcase today!

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