Lower Circuit Stocks India in 2023 for your Portfolio

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, 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 have gone 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 stocks are suitable for investors with a high-risk appetite, as their prices can be volatile and subject to sudden drops. However, they also have the potential for high returns. 

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 lower circuit 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 is 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 share market is triggered, trading in the stock is halted for a certain period. Usually, 15-20 minutes allow the market to stabilize before trading can resume. During this period, buyers cannot place bids, and sellers cannot offer their shares for sale. Once the circuit limit is lifted, trading in the stock resumes, and buyers and sellers can place their orders again.

But when the trading of stocks in lower circuit resumes, there is usually a rush of buy orders. As investors look to buy the stock at a lower price. This can lead to a sudden increase in the stock’s price, but 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% during a single trading session. Consequently, once the stock reaches this lower circuit, trading in the stock is suspended for a specified duration. Usually 15-20 minutes, to allow the market to stabilize before trading can resume.

List of Popular Lower Circuit Stocks

Check out the lower circuit stocks list below:

Lower Circuit Stocks on NSE

Lower Circuit Stocks on BSE

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:

1. 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. Seek to understand why the stock is locked in a lower circuit. Determine if it’s due to temporary issues or fundamental problems.

2. Risk Evaluation: Recognize the unique risks associated with lower circuit stocks. They can be highly volatile and illiquid, making it challenging to buy or sell shares.

3. 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.

4. 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.

5. 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.

6. 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 invest in lower circuit stocks via smallcase. Let’s explore how you can do that!

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:

1. 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.

2. 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 the lower circuit stocks included in the smallcase. Investigate why they are part of the strategy and whether you are comfortable with the risks associated with them.

3. 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.

4. 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.

5. 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?

• 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 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 lower circuit stock can be rewarding. 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.

Strategies for investing in lower circuit stocks

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

1. 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. 

You can also consider the management team’s experience and track record in the industry. 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.

2. Technical Analysis for 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 analysis can assist you in assessing whether the stock is experiencing overselling or undervaluation and whether it’s an opportune moment to make a purchase.

3. Contrarian Approach for Lower Circuit Stocks

A contrarian strategy is to take a contrarian approach and invest in companies others avoid. This approach involves looking for companies that are 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.

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. This means there are no buyers available in the market to buy the stock from you. However, here are a few tips for you on how to sell stock in lower circuit :

1. 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.

2. 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, allowing you to potentially sell your shares at a higher price.

3. 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, keep in mind that this may come at a higher cost, such as a brokerage fee or commission.

To Wrap It Up…

Lower circuit stocks can be a high-risk, high-reward investment. While investing in these stocks can offer great 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, for achieving well-balanced portfolios that capitalize on such market phenomena, consider using 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? Download the smallcase app today and start your investment journey!

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