For the last many months, FANMAG stocks were ruling the US markets as these businesses continued to soar, capitalising on the new opportunities created by the coronavirus pandemic. Indian investors were trading millions of dollars a month to tap the hefty returns offered by these companies to balance their portfolios as well as maximise their earnings.
What saw a drastic shift to non-FANMAG stocks was Tesla's India entry, spiking Indian investors' interest in electric vehicle manufacturers.
It’s obvious that social media platforms are turning into digital versions of traditional trading floors. Amateurs and newbies are scouting chat rooms, Telegram, Twitter, Instagram and Slack looking for tips to make quick money.
Though none of these “influencers” are professionals, they post free content, which most people find value in and execute without thinking twice. After all, isn’t it best to learn from people who have been there, done that.
Fast forward to the third week of January 2021, the struggling video-game retailer GameStop saw its stock surge by 1,000 percent following social media chatter on a stock trading discussion group.
GameStop’s tryst with NYSE started with Ryan Cohen, who is the founder of a popular pet-products site and decided to take on a few hedge-fund managers who had shorted the GME stock.
Wall Street hedge funds like Melvin Capital and Citron Capital had been shorting the gaming retailer, bringing its valuation down from $30 in 2016 to $4 in 2020.
For most of the big players at the Wall Street, this was an opportunity to bet against the stock. However, fund managers continued to short GameStop with the intention of crashing its price again.
The wider and popular Reddit group wallstreetbets decided to support GameStop and a few other stocks. In their defence, they were fighting a corrupt system run by cash loaded "professional" investors.
The relentless demand by the small retailer traders, saw GameStop's valuation rise from $2 million to over $24 million in a couple of days.
Elon Musk’s tweet, “Gamestonk!!”, and raging conversations over Facebook, Reddit, and Twitter sent GameStop’s shares on a giddy high unsupported by traditional valuation metrics or business reasons.
In the last week of January, GameStop saw many trades as well and has been among the top 5 traded stocks on Stockal. To quantify things, in the last five days 15 percent of all Stockal trades were in GME!
So there is awareness among investors and it also shows that Indians are active global social media participants. So while FAANG and Tesla are favourites and frequently traded, people are seriously investing beyond the regular stocks, showcasing the rising consistency and efficiency in the tracking of US market movements. Indian investors have left no stone unturned in trading in GameStop, as digital brokerages have seen a jump in queries and requests for assistance to trade in the GME stocks.
Let find answers to some questions about the prevailing situation:
Can wallstreetbets type of forums influence retail investors’ behaviour in India?
The GameStop coup has led to a shift in the power equation, with small fishes turning to take on the big sharks that are professional short-sellers. Although theoretically, it is possible to trigger this kind of rally, it is most likely not to take place in the BSE or NSE.
The market participation of retail investors in the US is much higher than in India. Although ‘DalalStreetBets’ and ‘IndianStreetBets’ have already credited about 1800 percent rally in GameStop, a similar shift is less likely to happen in India.
The market regulator SEBI has set limits on how many stocks a single entity can purchase or short.
How relevant is this for Indian investors?
The retail investors who had access to US markets tried to replicate the frenzy in India and many investors hopped on to the bandwagon to maximise their gains.
However, a three-digit rise in the price of a stock within a month is certainly not possible in the BSE or NSE because of intra-day circuit filters that limit the maximum fall or rise for stocks to 20 percent over the previous day’s close.
Even if the stocks continue to hit the upper end, SEBI will intervene and take measures to minimise the damage.
We feel that frenzy like this may not be relevant to the Indian investors to a large extent like that of the US, as it is more of a speculative play driven by small retail traders.
Concerning Indian traders, we do not see significant margins as it is hard for retail investors to win if they are up against promoters and operators who work as a team.
(The author is Co-Founder & Co-CEO, Stockal Inc.)
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