How Institutions Leverage Deal Flows

On 21/04/22 Gland Pharma’s Stock was up ~5% on heavy volumes. The reason for the same was that there was a block deal in Gland Pharma wherein Nicomac Machinery (existing investor with ~5.8% stake) sold ~3.3% stake.

For a normal investor, this might seem confusing because such large sell should in theory push a stock lower. However, markets rarely work in theory. Since everyone knows the theory, the practical application of the same rarely works out.

Most professional investors and institutions in the markets have good info around major deal flows like, who is buying what and who is selling what. And professional players in the markets have always used this info to their advantage.

The normal playbook that works here is that, if these professional players get wind of a possible sell block in a particular stock, they stop buying that stock with the goal of getting their required quantity in such stock at lower prices as & when such block deal actually happens.

This results in a situation wherein the stock starts languishing as the professional players, who are the regular & bulk buyers/sellers in all stocks, reduces their activity.

But, once such deal happens, wherein not everyone is able to get their entire quantity filled, their activity in the stock increases, as they try to cover up for the buying that was on hold for sometime in anticipation of the block deal.

And this is what explains the rise in the Gland’s stock price today, as everyone who has could not get their required qty in the block deal, rushed to buy.

Same thing happens in case of QIP as well. Once a company announces a QIP, the professional players hold their regular purchase, with a goal of buying in bulk in the QIP. Once the allocations in QIP is confirmed, everyone who could not get their entire quantity, rushes to get their remaining qty.

Saregama recently did an QIP and the same pattern is visible there as well.

Something similar can be observed in MSCI Rebalances as well. Everyone has become smart so much so that they have started front running the ETFs. As & when the rebalance is announced and a particular stock is supposed to get X amount of buying on a specific date, what these professional players do is that they start buying heavily that particular stock in advance with the sole purpose of dumping the same to these blind ETFs at higher levels.

So, if you will observe, on the day of actual rebalance when these ETFs comes to buy in bulk (just around 3.00pm), the stock instead of going up, actually goes down, atleast for the initial period. Reason being that such professional players dump their entire qty bought for this whole MSCI pump & dump.

Such patterns can sometimes help time the short term buy/sell decisions for investors or atleast help understand the cause of stock’s price movement.

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