Explained: Concept of bulk deals and what they signify!
Purchase of shares via bulk deals usually signifies a rising interest in the stock.
A bulk deal is a transaction in which more than 0.5 per cent of the shares of the listed company are bought or sold. These deals take place during the normal trading sessions on the exchanges. They can be executed in a single shot transaction or through multiple transactions during the trading session.
In case of a one-shot transaction, the broker managing the deal has to report the details of the transactions immediately to the exchange. If the deal is executed through multiple transactions, the broker aggregates them and submits the details to the exchange within one hour from the close of the trading day.
Amongst the details to be provided, the broker has to furnish the details such as the name of the scrip, name of the clients, number of shares traded, and the price at which the trade was executed. Upon the closing of the trading session, the exchange releases this information in the public domain.
Also, the bulk deal orders are visible to everyone as against block deals, which are kept confidential.
Considering the high amount of funds required to enter into such deals, the participants to bulk deals are usually high network individuals (HNIs), banks and institutional players, such as mutual funds, hedge funds, endowment funds, etc. Moreover, these participants are thought to be better informed than the retail investors.
Purchase of shares via bulk deals by the above-mentioned participants usually signifies a rising interest in the stock. That is, the stock can be expected to rise in the near term. On the other hand, offloading of shares via bulk deals sends a negative message to retail investors. Owing to which stock prices can be negatively impacted.
The above-mentioned signals may not always be true. Bulk deals could be intra-day trades undertaken to profit from price movements or deals where there is a change of ownership from one promoter entity to another.
Bottomline
While bulk deals could guide the stock prices in the short term, they might not provide any long-term perspective on the company. So, it is the responsibility of investors to conduct due diligence before taking any investment decisions.