On June 18, CA Rover Holdings, a subsidiary of Carlyle Group, offloaded a 5.1 per cent equity stake in SBI Cards and Payment Services. In another bulk deal just a few days ago, TVS group companies — Sundaram Clayton and TVS Motor Company — sold almost all their stake in an automotive cable producer, Suprajit Engineering. The shares of SBI Card and Suprajit Engineering on the dates the bulk deals were announced fell by 4.3 per cent and 8.3 per cent, respectively. Bulk deals, as the name suggests, represent transactions in which large volumes of shares change hands.
What is it?
A bulk deal is said to have happened when an investor buys or sells more than 0.5 per cent of the outstanding equity shares of a company listed on the exchange. The 0.5 per cent quantity may be reached through one or more transactions executed during the trading day. Bulk deals are transacted during normal trading hours and are visible to everyone on the trading window. These deals are also communicated by the broker conducting the transaction to the exchange. If the deal happens through multiple transactions, then the broker aggregates them and intimates the exchange within one hour from the close of the trading day. The stock exchanges, in turn, provide information about these deals to the public on the same day after the market hours.
The information includes stock name, client name, deal type ( whether buy or sell), quantity of shares and the traded price.
A bulk deal is not the same as a block deal. A transaction with a minimum value of ₹10 crore executed through a separate window is a block deal. Block deals are not visible to regular market players. Unlike the market-driven bulk deal, block deals are usually put through at prices negotiated before their execution. This is to ensure confidentiality of the trade and stable prices. But the stock exchanges disseminate information on block deals too to the general public on the same day, after the market hours. We can find the details about daily bulk and block deals on both the BSE and NSE sites.
Why is it important?
When it comes to buys and sells, the big players in the market are expected to know more than retail investors. Bulk deals are usually done by institutional investors, mutual funds and high net worth individuals for a high transaction value and thus are expected to signal institutional moves to small investors.
As the participants of bulk deals are considered to be more informed about the opportunities and risks facing a company, the pricing and timing of these transactions may indicate where the investment interest is rising and where it is falling. For instance, TVS group investors reducing their shareholding in Suprajit Engineering was interpreted as negative news by the market and the share price has since been trading lower than pre-bulk deal levels.
However, not all bulk deals may indicate long-term positions of the participants. There could be transactions which could be intra-day trades to gain from price movements, or deals where the stock is merely changing hands from one promoter entity to another. Often promoters participate in bulk and block deals, to adjust their cross-holdings. These transactions may not provide any long-term perspective on the company.
Why should I care?
If you are an individual retail investor, a look at the bulk deals data will help you understand how the interest in the stock you own is changing, especially with the big investors. Bulk deals done on a continuous basis can to an extent give some indication on the direction of the stock price in the near future. But be cautious when using the data, because it may not be always indicative of a trend.
The bottomline
Big may not always be right, in the market. So do your own due diligence.
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