Bulk deals power BSE bull run

MARKETS GET A NEW LOOK

Bulk deals have seen a huge increase on the bourses since the turn of the year. In June alone, bulk deals on the top two bourses touched the Rs 10,707-crore mark -- the second highest this year.

Of this, a significant proportion -- Rs 8,713 crore -- was executed on the Bombay Stock Exchange, with the average daily volumes being Rs 450 crore.

Bulk deal volumes in March were the highest at Rs 11,447 crore compared with Rs 1,598 crore in January.

Bulk deals are essentially transactions totalling over 0.5 per cent of the equity shares listed on the exchange and transacted for a single client. Such transactions need to be reported separately by the exchanges, according to Sebi guidelines.

Experts attribute the sharp rise in bulk deals to the growing appetite for mid-cap stocks from foreign institutions. Given that the average size of foreign funds is higher than that of domestic funds, their allocation to individual stocks is also higher, meaning a higher size of purchases.

Not just that, several brokers have been aggressively picking up substantial stakes in companies they are bullish on, with a view to off-loading to foreign clients eventually.

"There are several investors who are willing to add significant positions in mid-sized, fundamentally good companies with a view to realising better value for their holdings over time," says Mumbai-based broker Kailash Biyani.

The fact that FII stakes in large-cap companies have been rising and in several cases are close to breaching the foreign ownership limit, is only shifting the focus to mid-cap stocks.

But that's not all. Block deals, wherein the buyer and the seller's brokers pre-decide to execute the deal through an exchange, have been the key driver of the rise in bulk volumes. Foreign and domestic institutions run the risk of a heightened impact cost if they acquire shares through the normal course of trading.

According to dealers, block deals are more prevalent on the BSE as liquidity is thin. Dealers prefer to execute block deals on the BSE as the relatively lower liquidity ensures that the order does not get dispersed.

"It is easier to execute block deals on the BSE as you can be reasonably sure that the volume goes through entirely since it is thin," says a dealer. Block deals are executed during early morning trade when the trading volumes are very thin.