Like circuit limits on individual stocks, there are restrictions on the movement of indices (Sensex and Nifty). There are 3 types of circuit limits 10%,15% and 20% limits. These circuit limits are applicable for the movement of the indices either in positive direction or in negative direction.
Trading in both the exchanges will come to halt if the movement exceeds the limits in any one of the exchanges.
If the 10% movement takes place before 1:00 p.m. then market will be halted for an hour and if it takes place at or after 1:00 p.m. but before 2:30 p.m. then market will be halted for half an hour. If the movement takes place after 2:30 p.m. then there won’t be any trading halt.
On resumption of trading after the halted period is elapsed, if the market hits 10% again there won’t be any halt in the trading. But if the market hits 15%, there shall be a halt of 2 hours if the movement happens before 1 p.m. If the 15% limit is breached at or after 1 p.m. but before 2 p.m. then there would be trading halt of 1 hour. If it happens after 2 p.m. then there won’t be further trading on that day.
On the resumption if the market hits 20% limit at any time during the trading hours, the trading will be suspended on that day.
These limits are put in place to stop excessive speculation and control the liquidity.
A point to be noted here is that the absolute values of these 10%, 15% and 20% limits are not based on the previous day’s close as in case of individual stocks circuit limits. These values are calculated and announced by the bourses (NSE and BSE) at the beginning of each quarter. The absolute points are calculated based on closing level of index on the last day of the trading in a quarter and rounded off to the nearest 10 points in case of Nifty. This limit is applicable for the entire quarter.