For the first time since 2008, the circuit breaker was triggered and the trading was halted for 45 minutes in the Bombay Stock Exchange.
Circuit Breaker
The index based market-wide circuit breaker system was introduced by the SEBI (Securities and Exchange Board of India) in 2001. It is a mechanism used to prevent the markets from crashing due to panic selling. The current panic selling was triggered by the fears about the effect of the COVID-19 pandemic on the economy.
Application
The circuit breakers brings about a coordinated halt in the trade of equities and equity derivative markets. The system is applied differently at 3 stages of the index movement:
- When the index falls >10% before 1PM: trading is halted for 45 minutes.
- When index falls >15% on or after 2PM: trading is halted for remainder of the day.
- When index falls >20% at any time of the day: trading is halted for remainder of the day.
Reasons for fall in Stock Market
Some of the reasons for the current fall in the stock market are:
- The COVID-19 outbreak has affected consumer behaviour.
- Various sectors are taking a hit from the closing of borders: hospitality, tourism, airlines, etc.
- There is a fear that the COVID-19 pandemic would lead to a recession. Hence investor sentiments have been affected.
- Investors are cutting back on riskier investments.
- Foreign institutional investors have sold stocks worth about 25,000 crore INR in March (sustained selling).
- 50% drop in crude oil prices.