The share market today is essentially driven by the forces of two main participants. These make up institutional investors and retail investors. Both kinds of participants may trade and invest in a large amount of shares. They do this with great care, often using technical and fundamental analysis, historical data and trend analysis to determine the right stocks to pick. Additionally, investors who are regular players of the stock markets often assess the economy of the nation and base their decisions on this, among other factors.
The careful research and strategies, to value the market, that go into trading and investment imply that activities in the market involve serious business. When stocks are traded in large numbers, on the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), in a single tranche, the deals are known as bulk or block deals. However, here, bulk deals are stressed on, and how these impact trading/investing activity.
The volume of stocks that are involved in block and bulk deals is extremely large. If you are an active participant of the share market, you will be interested to know about these deals and how they may affect any market activity. Whether you are interested in direct equity and individual company shares, or an upcoming IPO, this information may come in handy. A bulk deal is representative of a deal in which the total share quantity sold or purchased is above 0.5% of the quantity of equity shares which are listed by any company. Such deals take place in the normal window of the trading day. Moreover, these are deals that are driven by the market.
The share market is a place where transparency is aimed at. Any information that involves stock market participation, in the form of any upcoming IPO, or direct trading of stocks, is known to all investors if the information is applicable to the general public. A bulk deal, once undertaken, is also visible to anyone who is trading in the exchange. A broker manages a bulk deal, and is required to provide any details and information pertaining to it, to the exchange.
If a bulk deal occurs through a single transaction, it is mandatory for a broker to convey this information to the stock exchange immediately. In the event the deal has taken place via several transactions, the broker must inform the exchange within one hour of the trading day closing. When you open a demat account, information is passed on to the relevant authorities by your broker. Just as this is a right of passage, any information that a broker shares with an exchange is made public by the exchange. The exchange makes the bulk deal information available before the closing of a trading day, and on the same day of the deal.
Since the percentages of stocks and capital involved in large deals like bulk deals are reasonably high, retail investors don’t participate in transactions of this nature.
It is the institutional investors such as foreign institutional investors, banks, ultra high net worth individuals or HNIs, mutual fund houses, venture capitalists, insurance companies, and other financial institutions that are main participants in such massive deals.
Regular bulk and block deal information can be found on the NSE and BSE. The information you get on a bulk deal is available if you trade online, just as the information about other investment options and financial instruments like any upcoming IPO is easily accessible.
Introduced by SEBI (the Securities & Exchange Board of India), block and bulk deals are aimed at providing more transparency and clarifying and explaining reasons for increases in particular stock volumes. Disclosures on bulk deals help investors in knowing reasons for increases in the price of certain stocks.
Disclosures frequently indicate the sectors that are gaining momentum in addition to where purchase interest is dropping. These deals normally attract retail investors who wish to invest in a small way, as they get some direction of the markets. This helps them in future potential investment cues, according to bulk deals.
Therefore, buying that is undertaken by institutional investors in bulk deals draws several buyers, moving stock prices up or down.
In November 2019, Rakesh Jhunjhunwala purchased a 0.51% stake or Rs. 1.30 crore shares, in the private lender, Yes Bank Limited, through open transactions in the market. The shares, bought at Rs 67.1, took the amount of the transaction to Rs. 86.89 crore. As a result, the price of the stock climbed by 9% the next day. In the two days preceding the transaction, the same stock was declining in value. Thus, there was a clear reinstating of retail investor faith in this particular stock after the bulk purchase. However, a word of caution is needed here. Retail investors shouldn’t attempt to replicate this move as there is no way of knowing about the period of holding, or the liquidity of bulk investors.
In the share market today, bulk deals tell retail investors about certain stock, creating an interest in that stock. In turn, this causes the stock to have a price appreciation in the future. Contrastingly, if a particular stock is sold in a bulk deal, rather than bought, this may lead to an undervaluing of that stock.
Studying transactions such as these over time give investors clear ideas about the way in which stock prices are affected when such deals occur. Besides this, investors also get a clue of the quality of institutional investors participating in bulk deals.
With regard to bulk deals, investors should separately evaluate short term and intraday trade data, as they mainly do not hold any major investment implications. Rather, investors must focus attention on bulk deals among promoters and institutions as these provide long-term perspectives on stocks.
Bulk deals help investors know who is interested in which companies. For new investors, bulk deals can say a lot about a particular company’s stock. Bulk deals (in the purchase of stocks) also pique the interest of new investors as credible people are viewed as investing in a stock that is potentially promising. When you open a demat account to invest in stocks, look out for bulk deals. You can also find a relatively sure investment opportunity with any upcoming IPO.
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