In the Indian stock market, large-scale share transactions are mainly classified into bulk deals and block deals. These types of trades usually involve high volumes of shares and are typically carried out by institutional investors such as mutual funds, foreign portfolio investors (FPIS), high-net-worth individuals (HNIS), and other large financial entities.
These large transactions can have a significant impact on the performance and movement of stock prices. That’s why SEBI has clear regulations in place to ensure transparency and to protect retail investors from sudden price volatility caused by such deals. Let’s understand the main features of bulk and block deals and the rules that regulate these transactions in India.
What Is a Bulk Deal?
The shares involved in bulk deals must exceed 0.5% of a company’s total listed shares. Bulk deals happen during regular trading hours, while block deals have a special time slot set by the exchange. Because of their visibility, bulk deals can be seen by market participants such as retail investors. The volume traded in bulk deals becomes visible to traders through price charts on trading platforms and websites.
Furthermore, because bulk purchases have a real-time impact on market prices, the broker who facilitates bulk transactions between investors or institutions must notify the stock exchanges of the transaction’s details. That includes factors like the participants’ identities and the amount and traded volume involved.
The execution of bulk deals through the block deal trading system requires the 0.5% share value to surpass ₹10 crores. Thus, providing shareholders with the option to place their orders during standard market hours or the block deal period. During block deal trading periods, investors can submit their trades to maintain order anonymity.
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Benefits of Bulk Deals
Bulk deals confer several strategic advantages for market participants:
- Transparency and Insight: Executed openly during regular trading hours, bulk deals are immediately visible to all investors. Real-time updates on large trades and who is involved make the market more transparent, helping investors spot major buying or selling trends and make informed decisions.
- Reduced Transaction Costs: Aggregating thousands or even millions of shares into a single execution lowers per-share brokerage and exchange fees. Compared with multiple smaller trades, bulk deals allow firms and fund managers to achieve greater cost efficiency when reallocating sizeable positions.
- Operational Agility: Freed from the constraints of specialised trading windows, bulk deals enable counterparties to transact large volumes at any point during market hours. This flexibility supports timely portfolio adjustments in response to evolving market conditions.
- Price Discovery Support: As bulk transactions feed directly into the order book, they contribute to accurate, up-to-the-minute price formation, benefitting all participants by reflecting true supply and demand dynamics.
What Is a Block Deal?
In block deals, a significant number of securities move through one transaction, which includes deals with either more than 5 lac shares or ₹5 crore worth of securities. These transactions are carried out through the stock exchange’s main order book, where institutional investors like mutual funds, insurance companies, and banks place their large orders together.
The stock exchange obtains reports regarding each trading agreement. The primary goal of block deals is to fulfil investment needs that require altering exposure to stocks or segments of the market.
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Benefits of Block Deals
Block deals have various benefits, such as the absence of market shock and ease of executing large transactions. Such deals are predetermined in a small price range, which also supports stability in prices. The following are the benefits of block affairs:
- Enhanced Efficiency: Block deals make large transactions possible without creating significant price distortions.
- Confidence Indicator: Positive block deals are indicative of the fact that an investor is optimistic about the future prospects of the company.
- Market Intelligence: The block deals provide key insights in terms of institutional investors’ perceptions.
Key Differences Between Bulk and Block Deals
To better understand, let’s compare the key differences between bulk and block deals across the following parameters:
| Parameter | Bulk Deals | Block Deals |
| Definition | Trade in an amount equal to or greater than 0.5% of the listed company’s equity on any single day. | Single trade of at least ₹10 crore or 5 lakh shares, whichever is lower |
| Number of Transactions | Multiple trades are possible throughout the day. | Single, pre-arranged trade |
| Pricing | At prevailing market prices | Within ±1% of the previous day’s closing price |
| Disclosure Timing | By the end of the trading day | Immediately after execution |
| Type of Investors | Both institutional and retail investors | Typically institutional investors |
| Market Impact | May cause short-term price volatility | Designed to avoid price disruption |
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Why Are These Deals Important?
Bulk and block deals are large-scale participations by key market players. They provide a glimpse of institutional sentiment and the stock demand or supply dynamics.
- Strategic Investment Decisions: Bulk or block deals can be used by large investors to enter or leave large positions in companies, normally related to strategic changes in the investors’ approach.
- Portfolio Rebalancing: These deals are usually employed by institutional investors to rebalance the portfolios, and especially during quarter-end reporting periods or in response to macroeconomic changes.
- Liquidity Requirements: When liquidity is required urgently, due to redemptions or corporate restructuring, investors may choose block deals to exit without disturbing the market price.
Regulatory Oversight by SEBI
Bulk and block deals are regulated by the Securities and Exchange Board of India (SEBI), which aims at transparency, investor protection and fair market practices.
Key regulatory provisions include:
- Timely Disclosures: The block & bulk deals have to be reported in time to the stock exchange. Block deals would be disclosed immediately, and bulk deals would enter at the end of the trading session.
- Price Band Restrictions: The trade for the block trades must be within ± 1 % of the prior day’s closing price for the block trade to prevent price manipulation.
- Record and Reporting Standards: Brokers and participants are expected to keep full records and meet their duty of reporting.
- No Multiple Block Deals: The party cannot do any Block Deal on the same stock on the same day it is in the same direction of trading, if it is involved in a block deal.
Conclusion
Large investors utilise bulk deals and block deals to conduct efficient market transactions, which support market stability throughout the Indian equity market. Though different in how they work, when they happen, and what they disclose, both bulk and block deals act as signals of institutional interest and can impact share prices in the short term. Such transactions need thorough analysis within an investment framework, rather than treating them as discrete purchase or sale indications.
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