Bulk Deals vs. Block Deals: Key Difference Explained
Not all participants in a stock market are identical; it consists of major and smaller players. The smaller participants are typically retail investors, regular individuals who actively invest in the market. On the other hand, the major players include high net-worth individuals, promoters, and significant domestic and foreign institutional investors like mutual funds, hedge funds, banks, and insurance companies. When invested, these institutions manage vast amounts of wealth, which can significantly influence the market's dynamics.
Additionally, these institutional investors often possess privileged information about the firms they intend to invest in, setting them apart from retail investors. Consequently, institutional investors frequently engage in substantial trading volumes and frequently execute block or even bulk deals. You will encounter these two terms if you aspire to become a true investor. Therefore, this article will explore the distinctions between bulk deals vs block deals. While they may appear similar, they have distinct characteristics.
The Block Deal- A Brief Overview
To understand the distinctions between block deals and bulk deals, it's essential to delve into the bulk and block deals meaning. Let's begin by elucidating the nature of block deals. A block deal is a single transaction involving the exchange of shares in quantities exceeding Rs. 5,00,000 or in cases where the total traded value surpasses Rs. 10 crores.
It's worth noting that SEBI modified the criterion in 2017 for defining the value of the block deal from a fixed amount in crores to the current Rs 10 crores. In today's stock market landscape, block deals occur within a designated trading window known as the "block deal window." Importantly, due to the special nature of these transactions, block deals are not accessible to retail investors and are not displayed on the value charts of any trading platform.
While you might draw a parallel between subscribing to an upcoming IPO and a block deal, it's crucial to recognize substantial differences in the quantity and value of shares involved.
The block deal window is open for a period of 35 minutes after trading opens, and any block trading executing on this window has to be reported to the exchange immediately by the broker, and such a trade cannot be squared off intraday.
What Is the Concept of Bulk Deal?
In the stock market, a Bulk Deal is a transaction in which a single entity, such as an institutional investor or a prominent trader, buys or sells a huge amount of a company's shares in a single trade. The definition of a bulk deal varies depending on the stock exchange and regulatory authority. Still, it often entails a transaction in which the number of shares exchanged exceeds a proportion of the company's total outstanding shares.
As per the bulk deal meaning, the transactions are generally disclosed to the stock exchange where the trade happens and made available to the public after the trading day. Market participants actively follow these transactions because they can give insights into the trading behaviour of institutional investors and other significant market participants, which can affect a stock's price and the broader market mood.
A Comparative Study Between Block Deal and Bulk Deal
Here is the main bulk deal and block deal difference:
| Aspect | Bulk Deals | Block Deals |
|---|---|---|
| Definition | Bulk Deal meaning involve the purchase or sale of a large quantity of shares of a company's stock, typically exceeding a predefined threshold (e.g., 0.5% of total shares). | Block deals meaning involve the sale or purchase of a substantial number of shares (typically 5 lakh or more shares or a total value exceeding Rs. 5 crore) in a single transaction. |
| Transaction Size | Smaller compared to Block Deals. | Larger compared to Bulk Deals. |
| Impact on Market | May have a limited impact on the stock's price, as they do not involve a significant percentage of the company's shares. | Can have a more significant impact on the stock's price, as they involve a substantial portion of the company's shares, potentially leading to price fluctuations. |
| Reporting Requirements | Bulk Deal must be reported to the stock exchange within a specific time frame. | Block Deal must be reported to the stock exchange within a shorter time frame than Bulk Deals. |
| Disclosure | The names of buyers and sellers are disclosed to the public after the transaction is completed. | The names of buyers and sellers are disclosed to the public immediately after the transaction is executed. |
| Purpose | Often used by retail and institutional investors for portfolio management or trading purposes. | Typically used by institutional investors, such as mutual funds, to acquire or dispose of a significant stake in a company. |
| Regulation | Regulated by stock exchanges and market regulators. | Also regulated by stock exchanges and market regulators but is subject to stricter rules and reporting requirements. |
| Market Reaction | Less likely to attract immediate attention from the market and traders. | More likely to attract attention from market participants, leading to increased trading activity and volatility. |
How Does Block or Bulk Deal in A Stock Affect It?
What is bulk deal in share market? What is block deal in share market? You must be eager to know how they affect the stock market. Block or bulk deals involving a security or listed share frequently indicate growing interest in that stock. When multiple deals occur for a stock over a period, it underscores confidence in the stock, potentially leading to an upward trend in its share price in the short term. Additionally, large investors sometimes utilize this strategy to attract more buyers to a specific stock.
Any significant transactions in the current stock market undeniably have repercussions for small and, in some cases, even large investors. These transactions garner attention due to their size and magnitude, often leading investors to perceive the stocks as trustworthy. While block and bulk deals may offer insights into increasing or decreasing interest in a specific stock, it's crucial to approach these signals cautiously. It's essential to consider other indicators and trends before making trading decisions.
The mere implementation of the bulk order doesn't guarantee that a specific stock will necessarily follow the bulk trade's direction. However, repeated bulk deals in a consistent direction, whether buying or selling, may suggest a growing interest in the stock aligning with the bulk trade direction.
The Bottom Line
Finally, understanding the differences between bulk and block trades is critical for traders and investors as they negotiate the complexity of the stock market. While both types of transactions involve large quantities, NSE bulk trades immediately impact real-time pricing and give insights into market sentiment. On the other hand, a block deal is a series of discrete, pre-arranged trades executed off-market to minimise the immediate market effect. Understanding these intricacies will help you make educated judgments that are in line with your trading techniques and risk tolerance, thereby enhancing your competence in the volatile world of stock trading.