Can chunks of a company's stock transacted by large investors be a lead indicator of where the market is headed? Not really. Such bulk deals can instead be used to judge the prevailing market sentiment.

An analysis of bulk deals by institutional investors — both domestic and foreign — over the past 15 months shows that they stepped up bulk buying during positive periods and sold heavily when market was down. They, however, did not appear to anticipate declines or rebounds.

Any transaction that involves buying or selling of at least 0.5 per cent of the number of listed shares of a company is a bulk deal. From January 2011 to March 2012, the value of bulk deals was Rs 18,547 crore. The total volume in bulk deals was 1.82 billion shares. This excludes transactions which involve purchase and sale of the same stock on the same day.

Not an indicator

When markets closed lower for the month, in eight out of ten cases, bulk deals showed more selling than buying. Similarly, in months when markets perked up, buying outnumbered selling in six out of ten cases.

For instance, the BSE 500 closed 9 per cent higher for the month of March 2011. In that month, bulk buying was to the tune of Rs 610 crore through 89 million transactions. Selling transactions came in at 23 million, worth Rs 331 crore. Likewise, the Sensex ended March 2012 down 2 per cent over the previous month. Institutional investors sold as much as Rs 1,739 crore worth of stock while buying far less at Rs 1,538 crore.

The total value of bulk deals too changed in tandem with the market mood. For example, the BSE 500 index ended August 2011 9 per cent lower than the previous month. Value of bulk deals dropped 58 per cent in the month. Similarly, when broader markets closed February 2012 with a 5 per cent gain, the cumulative value of bulk deals too shot up 13 per cent. The numbers suggest that bulk deals transactions may be used to reinforce the current market sentiment rather than as a cue to where institutions expect markets to go.

Speculative stocks

There are a handful of stocks, without strong fundamental backing, that feature frequently in the bulk deals list. Bulk deals also largely happen in mid-cap and small-cap stocks. This suggests that these trades might be more speculative in nature.

Acropetal Technologies, a small-cap stock, which saw cumulative trades of Rs 45 crore over the past 15 months, was among the top traded stocks in this category. The stock has lost 74 per cent in the past one year. Other favourites include Omkar Speciality Chemicals, Sayaji Hotels and Infomedia 18.

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