Lower Circuit Stocks: What Every Investor Should Know

Lower circuit stocks are those that hit the lowest price limit allowed for the day, triggering a trading halt. These circuit limits are set by stock exchanges to prevent excessive volatility and panic selling. When a stock hits its lower circuit, it means there's intense selling pressure with no buyers. Understanding lower circuit stocks is crucial for investors to manage risk and avoid unexpected losses. 

What are Lower Circuit Stocks?

Lower circuit stocks are shares that have fallen to the minimum price limit set by the stock exchange for a trading day. This limit is designed to prevent excessive losses and control market volatility. When a stock hits its lower circuit, trading is halted or restricted. It usually indicates high selling pressure with few or no buyers. 

Table of Contents

1. What are Lower Circuit Stocks?
2. List of the Top 5 Lower Circuit Stocks
3. Top Lower Circuit Stocks in India
4. How Circuit Limits Work?
5. Why Do Stocks Hit the Lower Circuit?
6. What Happens When a Stock Hits Lower Circuit?
7. How Are Lower Circuit Limits Set?
8. How is the Lower Circuit Limit Determined?
9. How Does Trading in the Lower Circuit Stocks Work?
10. Upper Circuit vs Lower Circuit: What’s the Difference?
11. Features of Lower Circuit Stocks
12. How to Invest in Lower Circuit Stocks?
13. How to Invest in Lower Circuit Stocks via BlinkX?
14. What are the Factors that can Trigger Lower Circuits?
15. Benefits of Lower Circuit Stocks on NSE & Challenges Associated with Lower Circuit in Share Market 
16. Strategies for Investing in Lower Circuit Stocks
17. How to Exit From Lower Circuit Stock?

List of the Top 5 Lower Circuit Stocks

Below is the list of lower circuit stocks today:

Disclaimer: The information provided on the above stocks is for informational purposes only. It is crucial to conduct thorough research before making any investment decisions regarding these stocks. We do not recommend trading any stocks without comprehensive research and professional financial advice. Always consult with a certified financial advisor to ensure informed and appropriate investment choices.
 

Top Lower Circuit Stocks in India

Below is the list of the top 5 lower circuit stocks,

1. KM Sugar Mills 

KM Sugar Mills Ltd. was founded in 1971 and produces and markets sugar, ethanol, ethyl alcohol, and power-using bagasse. The company generates its revenue from several key products and segments. 

• Company is expected to give a good quarter.
• Though the company is reporting repeated profits, it is not paying out the dividend
• The company has delivered sales growth of 11.0% over the past five years.
• The company has a return on equity of 11.8% over the last 3 years.
• The dividend payout has been at 1.48% of profits over the last 3 years.
• The company has reported net profit after tax of Rs 7.66 Crore in the latest quarter.

2. Narmada Agrobase Ltd

Narmada Agrobase Ltd. was established in 2013 and produces and markets cattle feed and cotton seed. The raw material is bought from Ahmadabad's local market. The company currently uses a network of commission agents, brokers, distributors, etc. to market its goods. 

• The company has reported net profit after tax of Rs .61 Crore in the latest quarter.
• Though the company is reporting repeated profits, it is not paying out the dividend
• The company has delivered a sales growth of 1.16% over the past five years.
• The company has a return on equity of 4.85% over the last 3 years.

3. TPL Plastech 

Incorporated in 1992, TPL Plastech Ltd manufactures and sells Polymer Products. The company has established a reputation for providing dependable and environmentally friendly plastic solutions to its clientele by prioritising quality and innovation.

• The company has reduced debt.
• The company has been maintaining a healthy dividend payout of 28.0%

4. Lypsa Gems

Lypsa Gems and Jewellery Ltd. was founded in 1995 and focuses on three main areas of business: manufacturing, marketing, and rough preparation of polished diamonds. With affiliates in Moscow, Dubai, Antwerp, and Mumbai, it is headquartered in Mumbai. 

• The company has reduced debt.
• The company is almost debt-free.
• Stock is trading at 0.53 times its book value.
• The company has reported net profit after tax of Rs -32.74 Crore in the latest quarter.

5. Franklin Industries Ltd

Franklin Industries Ltd. was founded in 1983 and engages in the wholesale marketing of jewellery and agricultural commodities. 

• The company is almost debt-free.
• Company is expected to give good quarter
• The company has delivered good profit growth of 159% CAGR over last 5 years
• The company has a good return on equity (ROE) track record: 3 Years ROE 73.2%

How Circuit Limits Work?

• Circuit breakers in the stock market are regulatory tools used to curb extreme price movements and reduce stock market volatility.
• Upper and lower circuit limits are predefined price bands set by exchanges like NSE/BSE, restricting how much a stock can move in a day.
• When a stock hits the lower circuit in stock market, it can no longer be traded below that price for the rest of the session.
• These limits help prevent panic selling or irrational buying, ensuring orderly trading and avoiding unnecessary trading halt.

Why Do Stocks Hit the Lower Circuit?

• A stock may hit the lower circuit due to negative news, poor earnings, or weak market sentiment triggering heavy selling pressure.
• Lack of buyers in the market creates an imbalance, causing the stock to fall sharply, becoming a stock hitting lower circuit today.
• Global events, regulatory actions, or sectoral downturns can also impact lower circuit stocks significantly.
• Traders trying to exit positions simultaneously can accelerate the fall, especially in illiquid stocks.

What Happens When a Stock Hits Lower Circuit?

• When a stock reaches its NSE/BSE lower circuit, it cannot be sold at a lower price, effectively creating a trading halt.
• Sellers remain in queue with no buyers, leading to frozen trades in lower circuit stocks.
• This situation often results in panic among retail investors, amplifying stock market volatility.
• The stock can only resume normal trading if buying interest emerges and the price recovers above the circuit limit.

How Are Lower Circuit Limits Set?

• Lower circuit limits are defined by the stock exchanges (like NSE/BSE) and depend on the stock’s category and past volatility.
• They are typically set at 2%, 5%, 10%, or 20% from the previous day’s closing price, based on risk assessment.
• High-volatility or speculative stocks may have tighter limits to prevent manipulation and excessive losses.
  These limits are reviewed periodically to adapt to changing stock market volatility and trading patterns.

How is the Lower Circuit Limit Determined?

Stock exchanges utilise circuit limits to regulate sharp price swings in a certain stock. To protect investors' interests, the Securities and Exchange Board of India (SEBI) introduced the idea of the upper circuit and lower circuit stocks in India. Lower circuit limits may be impacted by market conditions. Circuit limitations may be lowered to avoid panic selling during periods of extreme market volatility or unpredictability. 

How Does Trading in the Lower Circuit Stocks Work?

When a lower circuit is triggered, trading in the stock is normally stopped for a certain period of time, usually 15 to 20 minutes. This allows the market to settle down before trading starts again. In lower circuits, only buyers can place orders to buy shares, and sellers may not be able to sell them. After the circuit limit is removed, trading in the stock resumes and buyers and sellers can place orders.

However, when the lower circuit stocks trade again, there is typically a spike in purchase orders due to potential buyers trying to get a better deal. This could lead to a rise in the stock price. You can also track a list of lower circuit stocks today.

Upper Circuit vs Lower Circuit: What’s the Difference?

Features of Lower Circuit Stocks

Various Features of lower circuit stocks are explained as follows 

1. Substantial Price Drop

A lower circuit stock may experience a significant price drop. Frequently hitting the exchange's specified minimum threshold in a single trading session.

2. Trading Suspension

After activation of the lower circuit, trade in that specific stock is immediately stopped for the rest of the trading session. This might avoid further panic selling and stabilise the market..

3. Risk and Volatility

Low-circuit stocks are usually considered as highly volatile and risky. As a result, the unexpected price drop could cause investors to continue suffering big losses.

4. Limited Trading Opportunities

Due to the trading halt, investors could only have a few chances to purchase or sell the shares. This could limit profit potential, decrease losses, and irritate people. 

How to Invest in Lower Circuit Stocks?

Lower circuit stocks have limited liquidity and carry some risk; therefore, investing in them should be done carefully. If you're considering making these kinds of investments, keep the following in mind:

1. Extensive Research

Start by conducting in-depth research on the company that produces the lower circuit stock. Analyse its management category, company plan, financial health, and possibilities for growth.

2. Risk assessment

Be mindful of specific challenges that may arise from lower circuit stocks. Due to their high volatility and lack of liquidity, it can be difficult to buy or sell them.

3. Consult Financial Advisors 

If you're experiencing difficulties with these stocks, consider contacting a financial advisor or certified stockbroker. Their knowledge can provide sound advice and guidance.

4. Start Conservatively

If you do, start with a little portion of your portfolio. Remember to allocate a significant portion of your wealth to a single lower circuit stock.

5. Use Limit Orders

When trading lower circuit stocks, use limit orders. This safeguards against unforeseen price fluctuations by enabling you to specify the price at which you're willing to buy or sell. 

How to Invest in Lower Circuit Stocks via BlinkX?

You can invest in the lower circuit through BlinkX by following these steps.

• Ensure you have a PAN card and bank account linked to your Aadhaar and are over 18 years.
• Sign up on BlinkX stock trading app or a website and complete the Demat account opening process. Fund your account with the amount you wish to invest.
• Research companies and identify stocks you'd like to buy. BlinkX offers various resources and allows searching by company name/symbol.
• Check the current price, lot size (minimum number of shares to buy), and any restrictions. Then, decide on the number of shares (quantity) and order type (market or limit). 

What are the Factors that can Trigger Lower Circuits?

The following is a list of factors that may trigger the lower circuit in stock market. 

1. News & Announcements

Unfavourable news regarding the company, such as poor financial performance or a significant legal problem, may cause a lower circuit by prompting a sharp sell-off.

2. Concerns about Liquidity 

A lower circuit in the stock market may result from a lack of liquidity for a specific stock in the market. The market could not have enough buyers or sellers to keep the stock price steady.

3. Market Sentiment

Lower circuits may be triggered by negative market sentiment carried by many variables. Geopolitical conflicts, global economic conditions, and political instability are a few of these reasons. 

4. Technical factors

If the stock price breaks important technical levels, technical indicators like trend lines, moving averages, and support and resistance levels may cause a low circuit share market. 

Benefits of Lower Circuit Stocks on NSE & Challenges Associated with Lower Circuit in Share Market 

Various benefits and challenges associated with lower circuit stocks are explained as follows.

Strategies for Investing in Lower Circuit Stocks

Various strategies for investing in lower circuit stocks are explained as follows.

1. Circuit Caution

Lower circuit stocks experiencing significant price drops can be attractive for some investors. But be mindful of the risks before you invest. 

2. Contrarian Approach

Seek out companies where there may be short hiccups contributing to the decline. Should the company's fundamentals hold firm, a recovery can yield substantial profits.

3. Extensive Due Care

Determine the cause of the fall. Was it bad news, panic in the market, or problems unique to the industry. Analyse the finances and future outlook to determine the likelihood of recovery.

4. Stop Loss Orders are Crucial

Set stop-loss orders to automatically sell if the price falls further, protecting your capital from excessive losses.

5. Diversification is Key 

Lower circuit stocks are inherently risky. Allocate a small portion of your portfolio to them, ensuring the rest remains invested in stable options. 

How to Exit From Lower Circuit Stock?

Since the stock is trading at its lower circuit limit, which means there are no buyers in the market to buy the shares from you, exiting from a lower circuit stock might be difficult. Here are a few tips on managing the sale of stock in the lower circuit.

1. Wait for the Circuit to Lift

Depending on the volatility of the stock, the stocks in lower circuit is usually removed after a certain period, which could be one day, one week, or longer. The stock can trade freely after the circuit is lifted, which might let you sell your shares for more profit.

2. Place a Sell order at the Upper Circuit Limit

If you trust the stock price will climb, you may place a sell order at the upper circuit limit. In this manner, the system will automatically execute your sell order when you lift the circuit.

3. Consult a Broker

Even if the stock is trading at the lower circuit limit, you can still consult a broker to help you find a buyer for your shares. However, this can be more expensive, such as a commission or brokerage fee.
 

Conclusion
Stocks in lower circuit are an investment with a strong profit potential but also risk. Though there may be high returns from investing in these stocks, you must do your research and understand all possible risks. By using a stock trading app you can make it easier to track these stocks and manage your investments. While these stocks can offer quick gains, the possibility of further losses and liquidity problems should not be underestimated. Hence, thorough research, risk assessment, and a well-thought-out strategy are essential when dealing with lower circuit stocks.