Navigating Upper Circuit Stocks in India: Opportunities and Risks

6 Nov 2024 , 05:25 PM

Sometimes, the upper circuit stocks of the Indian market attract trading dealers. These stocks exercise price range and reach the upper side of the range set by the specific stock exchange. Upper circuit stocks may be pretty attractive for people interested in getting fast returns. But this, too, has its disadvantages. In keeping with this theme of upper circuit stocks, this blog covers what it is all about, why it matters, and how one can get a strategy on it.

What is the Meaning of Upper Circuit Stocks? 

In order to protect the actual value of their stocks, stock exchanges have placed certain restrictions, one of which is the price limits. The upper circuit is the highest price that a particular stock can trade on any specific day of trading. The trading of a particular stock of a company is either halted or becomes limited once it reaches this level of fluctuation.

The buyers cannot buy more than this limit, and the sellers cannot quit. This promotes the situation of supply-demand disharmony, which more often results in the upward revision of prices.

Glimpse of the Upper Circuit Stocks

Here, we’ll have a glimpse of NSE’s best upper circuit stocks.

Company Name	LTP	% Change	Volume
Vineet Laborator	61.99	7.06	119595
Swelect Energy	1173.1	20	865503
Steelcast	723.1	9.16	129398
Reliance Infra.	212.16	7.16	12139301
Nureca	327.75	11.18	393659

 

Why Stocks Hit Upper Circuits?

There are many reasons why stocks rise to the upper circuit. This can awaken a buying frenzy in the market upon receiving positive news about a particular company. The continuous upper circuit stocks can be a result of high earnings releases, big-ticket business acquisitions, or positive changes in the regulations. Moreover, even the market sentiment and speculation are also in the picture.

The Risk of Upper Circuit

Whereas the upper circuit stocks enable the realisation of quick gains within a limited amount of time, they are risky, too.

• The first risk is liquidity. It may become a bit hard to get out when a stock reaches the upper circuit. Such a position can lock the investors into the project.
• Overvaluation is another concern for the continuous upper circuit stocks. Higher price volatility could also be devastating, especially when the prices are set high against the company’s fundamentals.

Trade Upper Circuit Stocks 

Upper circuit stocks should be dealt with cautiously with a clear pattern of action. Research is crucial. Analyse the fundamental causes of stock price fluctuation. Analyse if it is essential or hype. The second one is to stay updated on news concerning the particular company. Timing is also a factor considered in the selection and implementation of strategies.

The lateness of the entry can also result in getting in at a higher price level. There is always a possibility of risks; hence, one should place stop-loss orders. Diversification helps, too. Do not invest a large amount of money like all your capital in any one stock of an upper circuit.

Conclusion 

The best upper circuit stocks in India are as attractive as a roller-coaster as they are risky for investors. It is, therefore, essential to understand why a stock has reached its upper circuit. However, as with any investment that carries the risks of high volatility on the stock market, there is a realistic possibility of achieving fast and high returns as well as threats such as liquidity problems and overvaluation.

Thus, to avoid or at least minimise the risks, one has to approach these stocks correctly in terms of research, timing, and diversity. Act prudently, and control the urge to get rich overnight.

FAQs

What is upper circuit stock? 

The highest price a stock can hit during a trading day is known as an upper circuit. The stock market sets this cap to stop unwarranted price hikes.

What happens when a stock reaches its upper circuit? 

Trading is briefly stopped when a stock reaches its upper circuit in order to keep the price from climbing further. This typically occurs when there is more demand than supply for the stock, which may be brought on by good news or a high level of interest from buyers.

Is purchasing a stock at its upper circuit a wise move? 

Purchasing a stock near the top of the market can be dangerous because the price may already be exaggerated and may not hold.

What could set off the upper circuits? 

Global events, regulatory changes, and investor mood can all cause higher circuits and increase market volatility.

What function do higher circuits serve? 

Upper circuits are a safeguard for investors that averts panic purchases.