What are Bulk Deals by Mutual Funds?
A Bulk deal is a transaction where an investor buys or sells more than 0.5% of outstanding equity shares of a listed company on a stock exchange. The 0.5% quantity can happen through one or more transactions during a trading day. The bulk deal happens during regular trading hours and is visible to all market participants.
Also, they are visible on the volume charts on trading platforms and influence the stock prices in real-time. The respective broker communicates the bulk deal transaction to the exchange. Also, if the deal happens through multiple transactions, the broker aggregates them and informs the exchange within an hour from the close of the trading day. Furthermore, the broker intimates the exchange details of the bulk deal, including stock name, client name, deal type (buy or sell), the quantity of shares, and stock price.
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The bulk deal differs from the block deal. A block deal is a transaction where the minimum value executed is Rs.10 crore through a separate window. A block deal is not visible to regular market participants. Also, the block deals undergo price negotiation before execution to ensure confidentiality of trade and price stability. However, stock exchanges disclose this information to the general public on the same day after market hours. These details about bulk and block deals are available on NSE and BSE websites.
Importance of Bulk Deals by Mutual Funds
Bulk deals were introduced by SEBI to provide transparency and explain the reason for the increase in volumes of a particular stock. Also, when these deals happen, big investors know about them more than retail investors. Furthermore, these deals are generally done by institutional investors, mutual funds or HNIs.
Generally, the participants of bulk deals like mutual funds are more informed about the opportunities and risks that the company is facing. Also, the pricing and timing of these transactions show which stock/sector the buying interest is rising and where it is falling. Furthermore, retail investors also get a sense of direction for their investments.
For example, in 2019, Sundaram mutual fund bought Yes Bank despite two days of consecutive falls. It exited the stock position in profit after Yes bank declared its quarterly results.
Additionally, not all bulk deals indicate the long term positions of the investors. Some transactions may be for intraday trades to gain from the price movement. While some may be deals where the company is changing hands from one promoter to another. Usually, promoters participate in bulk and block deals to adjust their cross-holdings. Therefore, these transactions do not provide a long term perspective of the company.
How Bulk Deals by Mutual Funds Impact Retail Investors?
As a retail investor, the bulk deals data help you understand how the interest in the stock you own is changing, especially with the big investors. Studying this data gives you a clear picture of how stock prices are influenced when such deals occur. Apart from this, it also gives an idea about the institutional investors who are participating in these deals. Even though bulk deals occur continuously, they can only give an indication of the direction of the stock price movement in the near future. However, remaining cautious while using this data for trading strategy is important as it may not always indicate the trend. Therefore, use your own due diligence before investing.