848 stocks hit lower circuit on June 4 post LS polls. Here is what it means

BHEL, Bharat Electronics, Adani Ports and Special Economic Zone, REC, Power Finance Corporation (PFC) from the future & option (F&O) segment stocks tanked 25 per cent

The Indian markets saw one of the worst sell-offs in recent history on Tuesday, June 4, as the outcome of Lok Sabha elections disappointed. Sell-off was seen across the board, especially in stocks of public sector companies, banks, shares of infrastructure-related companies and Ambani, Adani group stocks.

The Sensex tanked over 6,100 points in intraday trade to hit a low of 70,234.43 levels after hitting 76,300.46 during the day. 

As many as 848 stocks hit their respective lower circuit at 12:43 pm; with no buyers. 

Bharat Heavy Electricals (BHEL), Bharat Electronics (BEL), Adani Ports and Special Economic Zone, REC, Power Finance Corporation (PFC) from the future & option (F&O) segment stocks tanked 25 per cent in intra-day trade. Equities with F&O contracts don't have fixed circuit limits for the day.

Among the others, total nine stocks including Indian Bank, Kaynes Technology India, Capacite Infraprojects, DB Realty and Vaibhav Global have frozen 20 per cent lower circuit on the BSE, the exchange data shows.

Hindustan Zinc, Bharat Bijlee, Bharat Dynamics, Cochin Shipyard, Ddev Plastiks Industries, Inox Wind, Garden Reach Shipbuilders & Engineers, Praveg, Elecon Engineering Company, SML ISUZU, NBCC (India), Keystone Realtors, IFCI and Godrej Properties are among 78 stocks locked in 10 per cent lower circuit.

So, what is a circuit breaker / filter?

A circuit breaker is a measure to stem the steep fall or a sharp rise in the price of a security / stock or the index as a whole.

The concept was first introduced back in 1987, when the market crash of October 19, 1987 sent the Dow Jones Industrial Average (DJIA) tumbling 508 points, or 22.6 per cent in a single day. The incident is popularly known as Black Monday, as this rout in US equities triggered a global sell-off.

The Indian stock exchanges implemented index-based market-wide circuit breakers with effect from July 2, 2001. Some modifications, however, were made in September 2013.

The system applies at three stages of the index or a stock's movement in a trading day, either way, at 10 per cent, 15 per cent and 20 per cent. These breakers, when triggered, bring about a coordinated trading halt in all equity and equity derivative markets.

The market-wide breakers are triggered by a movement of either the Sensex or the Nifty, whichever is breached earlier. The exchanges compute the index circuit breaker limits on a daily basis, based on the previous day’s closing level of the index.

In case of illiquid securities or as a price containment measure, the circuit filters, according to BSE, are reduced to 10  per cent or 5  per cent or 2 per cent as the case may be, based on the criteria decided by the Surveillance Department. 

However, No circuit filters are applicable on Securities on which derivative products / F&O are available. That said, BSE imposes 10 per cent dynamic circuit filter on these Securities to avoid punching errors, if any.

Is the trading halted in case the stock / index hits a circuit filter?

Yes, the trading is halted but there is a limit to that as well.

What is a stock circuit filter?

In case the stock rises or falls 10% before 1pm on a trading day, the trading is halted for 45 minutes;

If circuit is triggered between 1pm and 2:30 pm, the trading is halted for 15 minutes;

After 2:30 pm, there is no halt in trading.

What is an index circuit filter?
 

If the index moves 15 per cent before 1pm, then the trading is suspended for 1 hour & 45 mins;

The trading is suspended for 45 minutes if the index moves 15 per cent on either side between 1pm & 2:30 pm, 

If the index moves 15 per cent after 2:30pm, the trading is halted;

If index rises or falls 20 per cent in a day, trading will be halted for rest of the day