What is block deal in Share market?

Block deals
A block deal happens through a separate window which is provided by stock exchanges. This window is open for only 35 minutes. A block deal happens when two parties agree to buy or sell shares at an agreed price among themselves.

The Securities and Exchange Board of India (Sebi) rules state that block deal orders should be placed for a price not exceeding +1% to -1% of the previous day’s closing or the current market price.

Sebi also states that a block deal is a single transaction of a minimum quantity of 500,000 shares or a minimum value of Rs.5 crore and is done between two parties which are mostly institutional players.

Who can go for such deals?

Taking into considering the percentage of shares and the amount required to carry out such transactions, retail investors cannot participate in such transactions.

It is institutional investors who participate in these transactions. These include mutual funds, financial institutions, insurance companies, banks and foreign institutional investors. Promoters also use this window to deal with issues related to cross-holding.

What does it mean for an investor?

It is often seen that investors, even retail participants, look at block and bulk deals as investment cues. However, one should keep in mind that a block or bulk deal in a particular scrip doesn’t necessarily mean that the stock price of the specific stock will increase.

However in case of bulk deals happening on a continuous basis in a share with high volumes, it could be a sign of appreciation in price in the near future. It could also be that it is an operator driven counter.

So, understand the profiles of the institutions involved in the deal. A bulk or block deal can be used as just one of the parameters when investing in a stock. Look at other factors such as a company’s fundamentals, its performance compared with peers, and its future plans.