This article talks about bulk deals, why it is important, who can enter bulk deals, how can we track bulk deals, and how it differs from block deals.
When an investor buys or sells more than 0.5% of the total outstanding equity shares of a company listed on the stock exchange, the investor is said to have entered a bulk deal. The 0.5% quantity may be reached through multiple transactions throughout the trading day. Due to its large quantity bulk deal is of particular significance for all other traders trading in the stock of that company. As the bulk deal is transacted during normal market hours or through a block trading window, it is visible to everyone on the trading window. A bulk deal gives an important indication of the broad trends of the market. It is mandatory for the broker executing the trade to report the details of Bulk deals to the stock exchange. Very often bulk deals are executed through sliced trade through the day to ensure they get the best advantage of the volatility and can reduce the cost of acquisition. In case of sliced order through the day, the bulk deal must be reported to the exchange within one hour of the close of trade. Stock exchanges report information about bulk deals to the public on a daily basis post the market hours. The information includes the stock name, client name, deal type, quantity traded, and so on. As bulk deal involves huge sums of money, usually participants of the bulk deal are big investors like Foreign Institutional Investor (FII) or Domestic Institutional Investor (DII). FII and DII include banks, High Net-worth Individuals (HNI), insurance companies, fund houses, etc.
Why Bulk Deals are important?
It is a common belief among market participants that big investors have more information, experience, and knowledge as to when to buy and sell stocks than retail investors. As bulk deals are undertaken by big institutional investors and involve high transaction value, it is expected to signal significant moves and trends to retail and small investors. As the participant of bulk deals are better informed about various opportunities and threats in the market, the timing of bulk deals may indicate the areas where investment interest is rising and areas where it is falling. Often, bulk deals are seen as an indication of a sudden flurry of interest in a particular stock by informed investors. Investors should always look at consolidated bulk deals data for a period of more than two years to form a meaningful outlook on a stock.
Generally, in mid or small-cap companies’ stocks, which have low liquidity, bulk deals can result in price shooting up or falling rapidly. The impact on the price of the stocks remains for days. Retail investors should analyze all relevant factors rather than jumping to a conclusion based solely on bulk deals.
Small and Retail investors need to be extra careful while analyzing a bulk deal as not all bulk deals indicate the long-term positions of the big investors. It is possible that bulk deal transactions are only intra-day trades to gain from price movements or deals where the stock is merely changing hands between relatives or from one promoter entity to another. Small retailers also need to be cautious if a bulk deal forms part of an arbitrage fund or if it is backed by heavy shorting in futures. Small investors should not rely on such bulk deals to form a long-term perspective about the stock as they are non-directional data.
Who can enter Bulk Deal and How it is done?
As Bulk deals involve a huge amount of money, their major participants are institutional players and High Net-worth Individuals (HNI). Generally, mutual funds, insurance companies, financial institutions, banks, venture capitalists, and Foreign Institutional Investors trade in such deals. Bulk deals may be used by promoters of companies to transfer the ownership of stocks.
Bulk deals are performed during normal trading hours. The only requirement is that the broker transacting such deals must inform the stock exchanges about it by sharing the following details with them:
- Name of the Stock and the Company
- Name of the client entering the bulk deal
- Quantity of shares bought or sold
- Average traded price
Bulk deals can be entered through a single transaction or multiple transactions on the same trading day (sliced order) depending on the volatility and liquidity of the stock. Securities Transaction Tax (STT) and other taxes are applicable on bulk deals like any other transaction.
Where can you track bulk trades?
Bulk deals are reported by brokers to stock exchanges, who in turn publish information about bulk deals on its website. Anyone can freely access bulk deal transactions through websites of NSE or BSE. Additionally, investors can find bulk deals of companies on websites like moneycontrol or other financial websites.
How Bulk Deals differ from Block Deals
|S. No.||Bulk Deals||Block Deals|
|1.||It refers to a transaction on stock market, which includes more than 0.5% of the shares of a company.||It refers to a transaction on the stock market, which involves minimum quantity of 5,00,000 shares or a minimum value of Rs. 5 crores.|
|2.||It is market-driven i.e., anybody can buy or sell on the market. There is no requirement of prior agreements between parties.||It is a transaction that is predetermined between two individual parties.|
|3.||Shares are generally traded on prices listed on the stock exchange.||Shares are traded at an agreed upon price.|
|4.||Bulk deal can be entered into throughout the trading hours. There is no specific time for entering bulk deals.||Block deals can be entered only during the first 35 minutes of the trading period i.e., from 9:15 am to 9:50 am.|
|5.||There is no specific or fixed price range. Transaction can take place at the price which is listed on the stock exchange.||The price should not exceed +1% to -1% of the last traded price or the previous day’s closing price.|