Since beginning of my Share market days, I always heard about bulk deals and block deals. Earlier I thought both to be same, and never tried to dig deeper into the subject. But later I came to know that both are different and impact of both is also different. So let me explain what exactly are the differences between Block deal and Bulk deal.
What is a block deal?
It is a transaction of a minimum quantity of 500,000 shares or a minimum value of Rs 5 crore between two parties, wherein they agree to buy or sell shares at an agreed price among themselves. The deal takes place through a separate trading window and this happens at the beginning of trading hours for duration of 35 minutes i.e. from 9.15 am to 9.50 am.
Rules set by SEBI state that the price of a share ordered at the window should range within +1% to -1% of the current market price or the previous day’s closing price. Block deals are not visible to the regular market as they happen in a separate window.
What is a bulk deal?
A bulk deal is a trade where total quantity of shares bought or sold is more than 0.5% of the number of shares of a listed company. Bulk deals happen during normal trading window provided by the broker. The broker who manages the bulk deal trade has to provide the details of the transaction to the stock exchanges whenever they happen. Unlike block deals, bulk deal orders are visible to everyone.
Who are the participants in such deals?
It is usually deep-pocketed investors like fund houses, foreign institutional investors, banks, insurance firms and HNIs given the high amount required to enter into such transactions and the percentage of shares involved.
Interpretation of such deals
Investors often rely upon the block and bulk deals and their movements for trading cues. However, this might not be completely true. A block or bulk deal in a particular scrip doesn’t necessarily mean that the stock price of the specific stock will increase as there are buyers and sellers involved in every deal. Understanding the profiles of the institutions involved in the deal and their strategies is required. However in case of bulk deals happening on a continuous basis in a counter or share with high volumes and high pending shares it could be a sign of appreciation in price in the future. Yet this could also happen in an operator driven counters.
So the block or bulk deals can be considered only as a first level of investigation and an investor before investing in a share should look for more details like specific information about the company like its fundamentals, its performance and ranking in its industry, its future plans and prospects etc.