What is Rights issue ?

Rights issue is a method used by companies to raise funds by issuing additional stocks to the existing share holders of the company. Share holders may or may not exercise their right of acquiring new shares issued by the company. Companies fix up a price for rights issue, usually less than the market price to make sure entire issue will be subscribed. The share holders can apply for more number of shares than they are entitled to. If some of the share holders don’t exercise their right the shareholders who have applied for additional shares are allotted the same.

It’s important for a shareholder to know the reason behind the rights issue i.e. whether the company is raising funds to acquire another company or to expand the existing business or to meet the obligations of the existing business.

Usually the share price comes down proportionately. This is because the company’s equity base goes up with the additional shares and hence the EPS (Earnings Per Share, Total Net Profit / No of shares outstanding; As the denominator increases keeping numerator at the same value the ratio comes down) comes down. Considering the same market conditions, to maintain the same P/E ratio before and after the issue, price comes down. Read more

October 12, 2008 | Filed Under Stocks | 5 Comments

What information do we get from bulk deals?

The following institutes/investors do bulk deals.

Mutual Funds
Foreign Institutional Investor
Banks
Financial Institutions
Insurance Companies
Venture Capitalists

To get an understanding on why bulk deals are happening in particular scrip, one has to know the profile of the above said institutes that involved in the bulk deal. If a stock appears in the list of bulk deals, it does not always mean that it would appreciate in future because in every deal there will be buyers as well as sellers. The strategy for both parties may be different. Some times bulk deals information is used to reveal upcoming multi baggers. If continuous bulk deals happen in a counter with high volumes and the pending quantity at the end of the trade is high then there would be good news in that counter and price will appreciate in near future. One has to be careful as the same phenomenon happens even in operator driven counters. So this information should be used as first level of investigation. Next step is to know the fundamentals of the company, its rank amongst the peers in the same industry and future prospectus of the company. Then you can take a decision if you can invest in that company.

May 25, 2008 | Filed Under Stocks | Leave a Comment

Difference between Bulk Deals and Block Deals:

Exchange provides a separate window for block deals. Bulk deals happen from normal trading windows that brokers provide.
There is only 35 minutes time window for block deals. Bulk deals can happen at any time during the trading hours.
Usually there will be one or none block deals in a day. There will be many bulk deals in a day.
A block deal should be a delivery trade i.e. the delivery of securities happens at T+2 days where as bulk deals are usually ‘day trades’ i.e. buy and sell on same day.
Block deals are associated with a minimum quantity of five lakh shares or a minimum value of Rs 5 crore. A transaction is a bulk deal if the total traded quantity exceeds 0.5% of the number of equity shares of a company.

What if the number of shares traded satisfies the quantitative definition of both bulk and block deals? For eg: A transaction of 5,75,000 shares(more than 0.5% of total shares) of a company whose total number of shares are 11,00,00,000. In this case if the transactions are traded by a separate trade window and are done on delivery basis they go into the list of block deals. If the transaction is a day trade it goes to the list of bulk deals. Usually we see transactions involving above 5,00,000 shares under bulk deals section as day trades.

The orders in a block deal are not shown to the people who trade from normal trade window. Bulk orders are visible to every one.
Usually, in a block deal, the trade happens between two agreed parties. It happens when one party would like to buy or sell to other party at an agreed price between them. Bulk deals are market driven.