Mutual funds have become major buyers of shares divested by promoters, strategic investors and private equity firms through bulk and block deals, which are available at discounts compared to the prevailing market price. The block and bulk deal windows offer them the opportunity to build their portfolio with good quality stocks.
Domestic funds get an opportunity to buy a sizeable quantity of shares through bulk and block deals, without distorting price. If the same deals are executed in the secondary market, the stock price will move up sharply given the sudden spike in demand.
Among the top-20 bulk and block deals so far this year, SBI Mutual Fund has invested ₹12,303 crore, while ICICI MF pumped in ₹4,232 crore, followed by Kotak MF and Motilal Oswal investment of ₹2,578 crore and ₹2,156 crore, according to data sourced from Prime Database.
All the four fund houses have restricted their investments to only 10 deals each, which is the sign of their selective approach in entering these deals.
MFs were active participants in almost all the recent large deals, including ITC, Bharti Airtel, Eternal, Interglobe Aviation, PNB Housing Finance, One97 Communications and KKR Mills where promoters offloaded their holding. Just a few days ago when Reliance Industries sold its stake in Asian Paints in two tranches, SBI MF was the buyer in the first lot and ICICI Prudential MF in the second lot.
Ample liquidity
Pranav Haldea, Managing Director, PRIME Database Group, said the steady rise in bulk and block deals points to sufficient liquidity in the hands of investors, while it also boosts foreign investors’ confidence in the Indian markets in terms of ease of exit (and entry).
Retail investors should not be perturbed by promoters diluting stake as their exit can be for a variety of reasons. While they may, of course, take some money off the table due to higher valuation, it can also be for a new investment opportunity, reducing debt or for personal expenses, he said.
Typically, large institutional investors find it convenient to take the block deal route as they can take a position in a stock at a known price without the fear of impact cost. The industry has been requesting SEBI to increase the cap on discount over the previous day’s closing price that can be offered under block deals, said Haldea.
Swapnil Aggarwal, Director, VSRK Capital, said MFs prefer bulk and block deals, instead of buying in secondary markets, to minimise the impact on stock prices as it will create sharp price spikes.
“We expect this trend to continue because MFs use these centralised routes to strategically accumulate quality stocks with less volatility and better pricing control,” he added.
Anil Rego, Founder and Fund Manager, Right Horizons PMS, said block deals — executed during special trading windows at pre-determined prices — help MFs avoid market volatility and price slippage when making large investments.
With growing Assets Under Management and steady inflows into equity schemes, MFs require mechanisms that enable them to deploy large sums quickly and without disrupting market prices, he said.
Moreover, such deals often involve negotiated pricing advantages and facilitate strategic stake building or portfolio rebalancing without alerting the broader market, he added.
Recent high-value transactions by MFs in companies such as Asian Paints, Jubilant Foodworks and Aditya Birla Capital, along with increased holdings in NBCC, Delhivery and Yes Bank reflect this growing trend, said Rego.
Passive funds also stand to benefit as SEBI’s proposed third block deal window during the closing auction session could help them reduce tracking errors, he said.