Upper & Lower Circuit in the Share Market: A Beginner’s Guide

2 April, 2025

Synopsis

• Upper and lower circuit are two price bands introduced by SEBI to regulate the steep price fluctuations in the stock market.

• The upper circuit is the maximum price a stock can reach on a trading day, and the lower circuit is the lowest it can fall during a trading session.

• Factors driving the circuit limits include market sentiment, economic indicators, political events, global market trends, and corporate actions. It helps to understand these factors and facts related to circuit limits to trade efficiently.

When trading in the stock market, a common advice is to trudge carefully due to its sometimes volatile nature. This may seem daunting to beginners, but there are certain measures in place to protect you from the extreme effects of such volatility. The Securities Exchange Board of India (SEBI) introduced circuit breakers known as stock upper circuits and lower circuits. These mechanisms help regulate market volatility. Read on to understand how they work.

What are the Stock Upper Circuit and Lower Circuit?

The upper circuit and lower circuit in the stock market are predetermined price bands. Stock exchanges set these bands to curb excessive volatility in individual stocks or the broader market. With these limits in place, extreme price fluctuations are prevented in a trading session.

The upper circuit is the maximum price that a stock can reach on a trading day. When the pricing hits the limit, it is referred to as "stock hitting the upper circuit". When this happens, the trading is halted temporarily to prevent further upward price movement.

On the other hand, a lower circuit is the minimum price limit to which the stock can fall during a trading session. If the stock's price hits this floor limit, it is referred to as "stock hitting the lower limit". This leads to a temporary suspension in trading to prevent further decline.

Factors Driving the Upper and Lower Circuit in the Stock Market

Some of the key factors causing stocks to hit their upper or lower circuits in the stock market are:

• Market Sentiment

Emotions and perceptions of investors can drive the demand or supply of shares. This causes sharp price movements, leading to stocks hitting the upper circuit or lower circuit.

• Economic Indicators

Changes in interest rates, inflation, or the growth of gross domestic product (GDP), etc., are some economic indicators that can influence stock prices.

• Political Events
  
  Political stability or unrest in the country can affect investor confidence. As a result, it has an impact on market volatility.
  
  

• Global Market Trends

Besides the domestic political environment, international events, such as trade agreements or global financial crises, can also affect domestic stock markets.

• Corporate Actions

Mergers, acquisitions or restructuring decisions can significantly impact a stock's price. This leads to a breakout in the upper circuit and a lower circuit freeze.

5 Critical Facts Related to Upper and Lower Circuit Shares

It helps to understand these key points associated with upper and lower circuit shares to navigate the stock market efficiently:
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• Trading is paused temporarily to assess information and prevent panic buying or selling when a stock hits the upper or lower circuit.

• The upper circuit or lower circuit for stocks is calculated based on the previous day's closing price on stock exchanges.

• Besides individual stock circuits, exchanges implement market-wide circuit breakers. They are based on the movement of broad market indices beyond certain thresholds.

• The limit on upper and lower circuit shares can vary based on the stock's category and the exchange's regulations.

• There are mainly buyers when a stock hits an upper circuit and buyers when the stock hits a lower circuit.
  
  

Secure Your Trades with Market Insights and HDFC Bank Demat Account

Market fluctuations can get overwhelming for both novice investors and experienced traders. These circuit limits help regulate the impact of such fluctuations. Besides the upper and lower circuits in the stock market, having a reliable platform to store your securities is crucial.

Using a HDFC Bank’s 2-in-1 Demat account will help you efficiently monitor stock movements, access expert insights, and make well-informed decisions. Be it managing a diversified portfolio or tracking stocks hitting circuit limits, this Demat Account simplifies the process.

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FAQs

Is it possible to sell a stock in the lower limit?
Once the price of a stock touches the lower limit, trading in it is temporarily halted. Trading in that stock starts again once price rises above the lower limit.

How long does a stock remain in the lower limit?
A stock can stay in the lower circuit in the stock market until sufficient buying interest returns. If the market sentiment continues to remain negative, it may hit the lower circuit consecutively for multiple sessions.

*Disclaimer: Terms and conditions apply. This article is only for educational/ informational purposes. It does not make any recommendation to act or invest. Investments in securities market are subject to market risks, read all the related documents carefully before investing.