What are upper circuit stocks & how to use them for your benefit?
Have you heard about the buzz surrounding upper circuit stocks in the stock market?
These high-flying stocks have taken the market by storm, capturing the attention of investors everywhere with their potential for significant gains and exciting trading opportunities.
But before you jump in, it’s important to understand the ins and outs of these upper circuit shares. In this comprehensive guide, we’ll take a deep dive into the world of upper circuit stocks, exploring what they are, how they work, and the strategies you can use to make the most of them.
What are upper circuit stocks?
Upper circuit stocks are stocks that have hit their upper circuit limit. This means their price has risen to the maximum percentage allowed by the stock exchange for that particular trading day.
How is the upper circuit limit determined?
The upper circuit limit for a stock is determined by the stock exchange and varies based on the stock’s price and volatility. The circuit limit is a percentage change from the stock’s previous closing price. The percentage change varies from stock to stock and can range from 2% to 20%. For example, if the circuit limit for a stock is set at 10%, it means that the stock can only rise a maximum of 10% from its previous day’s closing price.
Some examples of upper circuit stocks in the Indian share market are:
- Adani Total Gas Ltd.
- Tata Motors Ltd.
- Adani Green Energy Ltd.
- Dixon Technologies (India) Ltd.
- Tata Steel Long Products Ltd.
How does trading in the upper circuit work?
Trading in shares with upper circuit works differently from other stocks. This limit is set by the exchange and varies from stock to stock. Once a stock hits its upper circuit limit, trading in that stock is suspended for a certain period of time. Typically between 15-45 minutes.
This is done to prevent excessive speculation and price manipulation. Furthermore, it allows the market to cool down and for traders and investors to analyze the situation before resuming trading. During the suspension, buyers can place orders to buy the stock. However, the sellers cannot place orders to sell until trading resumes.
Once trading resumes, the stock may continue to trade at its upper circuit price or may fall below that price.
Factors that can trigger upper circuit in stock market
Several factors can trigger upper circuits in the stock market. Here are a few:
- Positive news and announcements: Positive news about a company, such as a new product launch, expansion plans, or a significant order win, can trigger an upper circuit in its stock price. For example, if a company announces a major merger or acquisition, it can make its stocks hitting upper circuit as investors rush to buy shares in the company.
- Strong financial results: When a company reports better-than-expected financial results, it can increase buying interest from investors, leading to an upper circuit in its stock price.
- Positive market sentiment: Positive market sentiment, driven by political stability, economic growth, or global market trends, can lead to an upper circuit in stock prices across the market.
Factors to consider while investing in upper circuit shares
Though investing in upper circuit stocks can potentially lead to high returns, it is important to consider the following factors:
- Lack of liquidity: Upper circuit stocks can have low trading volumes, which can make it difficult to buy or sell shares when you need to. This can result in higher bid-ask spreads, which might impact your returns.
- Limited price discovery: The upper circuit limit can artificially inflate the stock price, making it difficult to determine its fair value. This can lead to increased volatility in the stock price when trading resumes.
- Risk of price manipulation: The limited price discovery and lack of liquidity can make upper circuit shares vulnerable to price manipulation by unscrupulous traders. This can result in sudden and sharp price movements, impacting your returns.
- Potential downsides: Investing in upper circuit stocks can yield high returns. However, it is important to note that there are potential downsides, such as a sudden drop in the stock price when trading resumes or a lack of fundamentals to support the price increase.
Strategies to use upper circuit or price bands to your advantage
Here are some strategies you can use for investing in upper circuit stocks to your advantage:
1. Understand market trends and sentiments
Keep an eye on the overall market trends and sentiments, as these can impact upper circuit stocks. Look for sectors that are performing well or have positive news. As these can be good places to start your research.
2. Plan your entry and exit points
If you plan to invest in a particular stock, it is a good idea to check its upper circuit and lower circuit limits. You can use these limits to determine the stock’s entry and exit points.
3. Conduct thorough research
Before investing in an upper circuit stock, conduct thorough research on the company, its financials, and its future growth prospects. Look for strong fundamentals and positive news supporting the stock price increase.
4. Be aware of trading patterns and volume
Closely monitor trading patterns and volume for upper circuit stocks. High trading volumes can be a positive sign and indicate a lack of liquidity.
5. Manage your risk
Circuits or price bands can help you manage your risk. If you have invested in a stock that has hit its circuit limit, you can be sure that the price will not move beyond a specific range in a single trading session. This can help you limit your losses and manage your risk effectively.
6. Set realistic profit targets and minimize losses
Determine your entry and exit points for upper circuit stocks, and set realistic profit targets based on your research.
7. Avoid sudden price movements
Circuits or price bands can help you avoid sudden price movements in a stock. If a stock has hit its circuit limit, trading in that stock will be suspended for a some time. During this period, you can analyze the situation and make informed decisions without being influenced by sudden price movements.
List of Popular Upper Circuit Stocks
Check out the upper circuit stock list below:
| Serial No. | Upper Circuit Stocks NSE | Upper Circuit Stocks BSE |
| 1. | Siti Networks | Vishal Bearing |
| 2. | Rollatainers | Medico Remedies |
| 3. | Adani Green Ene | Atlanta |
| 4. | Flexituff Ventu | Rollatainers |
| 5. | WS Industries | Adani Green Ene |
| 6. | ABM Inter | Walchandnagar |
| 7. | Binani Ind | WS Industries |
| 8. | Walchandnagar | 21st CenMgt |
To wrap it up
Investing in upper circuit stocks can be a potentially rewarding but risky venture. Hence, to avoid the potential downsides and use circuits or price bands to your advantage, it is important to conduct thorough research and follow all the strategies that we have shared above.
Moreover, to make investing in upper circuit stocks easier, you can consider using smallcase. It is a platform that provides pre-built portfolios of stocks that align with different investment themes and strategies.
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