If you are confused about what stocks to buy or sell, which sector to invest in or how not to let the stock market take you by surprise, a look at the data on bulk deals, put out daily by stock exchanges, can offer important clues.
The information on bulk deals at the NSE over a three-year period, from 2004 to 2006, reveals that had investors taken cues from them, they might have been better able to spot sectors and stocks fancied by fund managers and sailed through periods of correction without too much stress.
This apart, investors contemplating investments in newly-listed stocks could also have got a tip or two from the bulk deals in selecting the promising ones.
Bulk deals are transactions that involve the transfer of more than 0.5 per cent of the number of equity shares of any company listed on the stock exchange. However, off-market transactions, through which Mergers and Acquisition deals are often routed, do not get reflected in the bulk deals data. Crystal-gazing with the help of bulk deals, though not foolproof, is a good indicator of market trends.
Riding market themes
At any point in time, some sectors are "in" or "out" of favour of the market. However, spotting the favourite themes and sectors at the right time is difficult. A sector-based study of the bulk deals shows that had investors been guided by such deals, they would have been able to spot the shift in the buying interest across some sectors, just in time. The comeback of IT stocks in 2004, the sugar story in 2005 or even the prolonged play on construction stocks could have been discerned in time by those tracking bulk deals.
IT stocks staged a comeback in 2004-05, after a bullish first quarter revision in management guidance from Infosys Technologies. The rise in interest was evident in the number of IT sector-specific bulk deals transacted that year. Mastek and NIIT were among the stocks that attracted significant buying interest.
Bulk deals in Mastek first appeared around April 2004. Though the month saw both buying and selling of the stock by funds, the stock saw substantial buying interest only by July 2004. Had investors bought the stock in July 2004, they would have earned about 40 per cent returns in six months.
Similarly, deals in NIIT, which were also put through in the same period, would have returned as much as 90 per cent had investors held on to the stock for a little over a year.
The data from bulk deals in 2004 also threw up some sell candidates, such as Polaris and SSI. Polaris, interestingly, remained out of action in 2005 and returned a negative 14 per cent that year, as the company struggled with the integration issues related to its merger with Orbitech. Despite an improvement in its financial performance in the first two quarters of 2006-07, buying interest by way of bulk deals in the stock surfaced only in the first week of December 2006. Bulk deals in this case were crucial, given that the stock price started soaring only around the last week of December 2006. Any investor who had spotted the bulk deal and followed suit, would have earned as much as 50 per cent till date.
Sugar story
Sugar stocks, which attracted market fancy throughout 2005, could also have been spotted early on from the bulk deals data. Bulk deals in sugar scrips started to show up in 2004, with buying seen in Balrampur Chini Mills and Sakthi Sugars; the bulk deals peaked only in January-March 2005.
Stocks such as Bajaj Hindusthan, Dhampur Sugars and Dwarikesh Sugar, which appeared on the buyer's radar around that time with significant bulk deals, appreciated considerably in six months.
Significantly, though the bulk deals revealed buying interest in sugar scrips in early 2005, the much-talked-about sugar story gathered momentum only around June-October 2005. Had investors spotted this rising interest in sugar scrips via bulks deals could have enjoyed better returns.
Similarly, had investors taken the cue from the bulk deals by which some mutual funds and global investors exited sugar stocks in January-February 2006, they might have avoided getting stuck in the sugar sell-off, which was fairly strong by end-April 2006.
Construction stocks, however, remained in fancy whole of this three-year period.
While stocks such as Gammon India and IVRCL Infrastructure remained in demand throughout this period, bulk deals revealed the emergence of new plays, such as BSEL Infrastructure, DS Kulkarni and even the quasi real-estate play Bombay Dyeing in 2005.
Investors who had built up exposure in these stocks around that time (when bulk deals were really happening) would have enjoyed fairly significant returns.
Bulk-buying interest in media stocks such as NDTV, Balaji Telefilms and TV-18 started right from 2004. While bulk deals in media stocks were few in 2005, with just some stocks changing hands, they gathered momentum in February-April 2006 with the listing of Sun TV and Entertainment Network. Both these stocks, which have since emerged as buy candidates in bulk deals, returned about 50 per cent and 30 per cent in a year's time.
The bulks deals during this three-year period did not capture any significant interest in sectors such as cement, retail or pharma.
Spotting stocks, post-listing
Bulk deals, though common in newly-listed stocks, can offer important clues if they are delivery-based. Buying by funds and other investors into a stock, despite a premium listing, could reflect the bullish undercurrent in the stock.
Among stocks that attracted such buying interest and have since yielded considerably good returns, are Indiabulls Financial Services (returned more than eight times), Tech Mahindra (160 per cent), Everest Kanto Cylinder (125 per cent), AIA Engineering (70 per cent) and Voltamp Transformers (50 per cent).
Similarly, selling a stock post its listing could also imply a bearish view on the stock. Among stocks that witnessed bouts of selling post-listing were JP Hydro and LT Overseas. While JP Hydro has remained sideways post-listing, LT overseas has shed 17 per cent till date. Investors could find bulk deals information a useful input before investing in newly listed stocks.
Market corrections
Bulk deals, though not a predictor of market corrections, could well serve as an indicator of market sentiment. During the much-talked about May 2006 correction, bulk deals data revealed that a few global investors had exited a number of mid-cap stocks such as Trent, Prajay Engineers, Fedders Lloyd, Esab India and Gujarat NRE Coke, when the market peaked in mid-May, reflecting the change in view.
If investors had sold these stocks around the same time, they could have avoided the steep correction later that month.
In stark contrast, even as retail investors were selling in panic during end-May and early June, mutual funds and some global investors scouted for value buys in the market via bulk deals.
IVRCL Infrastructure, Geojit Financial Service, Dewan Housing Finance Corporation and TV18 all enjoyed buyer's interest during this period. The 2004 May correction, which was short-lived, however, did not witness any significant action in the bulk deals space.
A word of caution
While bulk deals have in the past hinted at sectors and stocks gaining favour among savvy institutional investors, they might not be the only input to be considered for final decision-making.
Sufficient homework needs to be done by investors before deciding on the stocks.
Nevertheless, transactions via bulk deals do act as pointers to the retail investor and, used with prudence and discretion, can help them unearth some multi-baggers and dark horses in the market.