Nifty hits lower circuit after 12 years; drops 29% in a month

On Friday, March 13, 2020, the Nifty hit the lower 10% circuit within minutes of opening. What exactly does this circuit mean?

Mar 13, 2020 10:03 IST India Infoline News Service

Back in the 2000s, Nifty hitting the lower circuit was quite common. It hit the lower circuit in May 2004, again in May 2006, then in late 2007 and finally in January 2008. Since then, there has been one upper circuit in 2009, but not a lower circuit on the index. On Friday, the 13th of March 2020 (am I sounding like Leonardo da Vinci?), the Nifty hit the lower 10% circuit within minutes of opening. What exactly does this circuit mean?
Data Source: NSE

Are we missing something?
Exactly a month back on February 13, 2020, the Nifty had closed at 12,174; it has fallen to 8,624 in exactly 30 days. That is a fall of 29.16% in just one month. This is perhaps the most violent correction in stocks in the last 25 years in such a short period. What is perhaps more worrying for the markets is that the top losers on the Nifty are normally not in the selling list of most institutional investors. It is clearly indicative of a larger liquidity problem that some large global investors are facing.

What should investors do now?
The markets will be shut for 45 minutes and it remains to be seen if the other two circuits of 15% and 20% get hit. A 20% circuit would mean that trading will be halted for the rest of the day. The best strategy now is to just sit out and wait for the market to stabilize. Such a sharp correction rarely ends with a V-shaped recovery. There will finally be the last bull squeezed and then the markets will gradually get into consolidation mode. For now, traders and investors will have to wait with hope in their heart and a prayer on their lips. We can only say, “Thank God it’s Friday”, the last trading day of the week.

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