Be wary of stocks with bulky trades

Market expert Shankar Sharma of FirstGlobal, also warned, in an interaction with CNBC-TV18 last week, that people shouldn’t just think they can walk into the markets and make money—it takes years of experience to do so.

In the above context, here is another alert for the less initiated: avoid high-velocity stocks where bulky traders are at play. We all love speed, but, remember, speed kills. This is no different in the stock markets as on the road. And sharp moving stocks with a high degree of bulk trading activity, that is mostly netted-off daily (shares bought are sold and positions mostly squared off and vice versa), are best avoided by retail investors.

Stock exchanges report Bulk Trades at the end of each trading session and these links are found under “Equity – End of day reports” on the BSE website and under “Products>Equity>Current Market Reports>View End of Day Reports>Bulk Deals” on the National Stock Exchange (NSE) portal.

The list offers information on stocks traded and the buyers and sellers of the stocks listed. Important here is to take note of stocks that see high and almost equal buying and selling activity by the same players. Though promoter and fund transfers with schemes and accounts also do get reported here, most of such transactions represent “trading” activity, and are a signal to be wary.

To illustrate, some stocks that have been making it frequently to the bulk traded lists have seen significant price movements in the past month, of as much as 127 percent from their lows in the preceding 30-day period. We list a few of these “high trading activity” stocks to provide an indication.

Let’s pick one of them and take a closer look at the trajectory. Here, the RBL Bank stock makes an interesting study. The bulk trading activity in the stock in end-May was low at sub-10 percent. In fact, the stock hit a low of Rs 110.05 on May 27.

Then, in the second week of June, it saw a significant build-up with such trades well surpassing 20 percent of the total turnover for the stock on NSE. This was accompanied by a sharp move in the stock, from about Rs 123-126 to a high of Rs 168.65 on June 10 when a large buy trade of 1.67 crore shares by Jasmine Capital Investments Pte—an entity based in Singapore and likely associated with Clermont Group based there—was reported.

This was followed by some days of relatively less active trading that saw the stock trade in the Rs 155-170 band. Then, bulk trading activity picked up again on June 22 and the stock spurted to a high of Rs 205.70 on June 24 before closing the day at Rs 186.85. It now trades in the Rs 180-190 band.

What is clear from the above data is that sharp spurts in stock prices are accompanied by a jump in trading activity of a bulky nature, and these moves are rather sharp, which may be good for an adrenalin rush but are definitely not good for your financial health.

The bottom line: there are many fish in the pond. Why go where it clearly says “Danger 10,000 volts”.

Invest safely!