In 2008, when the stock markets
were bearish, many foreign institutional investors (FIIs)
and other big investors chose to keep away from the 'block
deals' in stocks plunging the trading volumes through such
deals by 30 per cent
However, things changed for good and when the Sensex
raised by over 47 per cent since March 2009 the long term
institutional investors and minority shareholders have
started showing interest to raise funds through block deals.
Between January 2009 and February 2009, there were six block
deals worth Rs 232 crore. Recently, several big companies
like Dish TV, UltraTech Cement, Ambuja Cements and Tata
Steel like have carried out block deals to name a few
But what are these block deals? How does it happen? And
why is it being talked about now? How is it different from
bulk deal? Let us see
What is block deal?
According to Securities and Exchange Board of India a block
deal is a single transaction of a minimum quantity of five
lakh shares or a minimum value of Rs 5 crore and is done
between two parties through a separate window of the stock
exchange that is open for only 35 minutes in the beginning
of the trading hours.
SEBI has also made it mandatory for the stock brokers to
disclose on a daily basis the block deals made through DUS
or Data Upload Software.
Difference between block deal and bulk deal.
Unlike a block deal that happens through a separate window
that is open for only 35 minutes in the beginning of the
trading hours at the stock exchange, bulk deals happen all
through the trading day. Another major difference is that a
bulk deal is said to have happened if under a single client
code and in a single or multiple transactions more than 0.5
per cent of a company's number of equity shares is traded.
Also, bulk deals are market driven while two parties are
required for a block deal to take place. Bulk deals carried
out for the day should be revealed by a broker on the same
day to the stock exchange using the DUS.
Who can go for these deals?
Generally, only the institutional players including the
foreign institutional investors are the major participants
in this type of deals. This also includes mutual funds, the
various financial institutions, and companies carrying out
insurance business, banks, and venture capitalists.
Sometimes, many promoters use this window to arrange the
issues that are related to cross holdings.
Statutory requirements that must be followed for block
SEBI has rules in place certain rules for carrying out
block deals. It is mandatory that block deals should happen
only through a separate window and for a period of 35
minutes only in the beginning of the trading hours. Also
SEBI rules state that block deal orders should be placed for
a price not exceeding +1 per cent to -1 per cent of the
previous day's closing or the current market price. Delivery
must be made for every trade executed and cannot be squared
off or reversed. All details like the name of the scrip, the
client's name, number of shares and traded price should be
disclosed to the public through the DUS every day after
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, and its future plans and prospects