Understanding Circuit Breakers and Daily Falls in Nifty 50 and BSE Sensex
Indian stock exchanges have a system known as Circuits. This system ensures that the highest circuit limit is 20 points, meaning the index cannot fall or rise beyond this level within a trading day. For example, if the index is at 100 on a Monday opening, it will not go beyond 120 or below 80 by the end of the trading day.
Circuit Breakers in Nifty 50 and BSE Sensex
Although the Nifty 50 and BSE Sensex do not have a fixed limit on the number of points they can fall in a single trading day, circuit breakers have been implemented to temporarily halt trading if the indices move significantly within a single trading session. Here are the circuit breaker levels and their impacts:
10 points decline: Trading is halted for 1 hour. 15 points decline: Trading is halted for 2 hours. 20 points decline: Trading is suspended for the remainder of the day.Similar circuit breaker levels apply to the BSE Sensex:
10 points decline: Trading is halted for 1 hour. 15 points decline: Trading is halted for 2 hours. 20 points decline: Trading is suspended for the remainder of the day.These measures are designed to prevent panic selling and provide time for investors to assess the situation. In practice, while the indices can theoretically fall by any number of points, these circuit breakers help manage extreme volatility.
Market-Wide Circuit Breakers
Based on the SEBI Circular and implemented from July 2, 2001, the exchange has introduced index-based market-wide circuit breakers. These circuit breakers apply at three stages of the index movement in either direction at -10, -15, and -20 points. The trading for the day will halt for the rest of the time once the index moves 20 percent in any direction. The market will remain closed for the...
For the Nifty 50, the circuit breaker gets activated when the index falls by more than 10 points. The maximum amount by which the index can fall before 1 PM is 10 points. After 1 PM, if the index continues to fall by more than 15 points, the trading halts for 2 hours. If the index falls by more than 20 points by the end of the day, trading for the day is suspended.
Factors Influencing Daily Falls
The movement of any index or a single counter, whether it's stocks, commodities, etc., in terms of points, cannot be defined. There could be a movement of 50 points as well as 500 points, depending on the factors affecting the market on a daily basis.
It is important to note that the market trend and events play significant roles:
Nifty 50: In the worst-case scenario, the minimum movement may have 30 points. In the best-case scenario, the maximum movement can be around 100 points. For intraday traders, on average, 50 to 80 points may move in a good trend with positive events.The interconnectedness of the global market means that events like economic changes, political decisions, and international news can significantly impact the indices, causing daily fluctuations. Traders and investors must stay informed and agile to navigate these changes effectively.