Indian small investors are venturing into unchartered territories as they are seen buying up shares of controversial US-based GameStop Corp and AMC Entertainment Holdings, which gave returns of over 1700% and 900% since the beginning of this year.
However, the US retail investor favorite GameStop Corp shares tanked 25% on Wednesday to $258.48, still up 1375% since the start of this year.
The video game retailer became the most traded stock in some Indian brokerages after a furious rally was fuelled by anonymous social media messages, even as India's BSE Sensex hit an all-time high to breached the 50,000 mark last week.
The other stock AMC Entertainment Holdings, gave over 900% returns this month but tanked 67% on Wednesday to $6.52, still up 227% since the beginning of this month.
Vested Finance and Stockal, the investment company that helps Indians to buy US stocks, saw GameStop accounting for 19% and 15% of the trades, respectively, this week, making it the most traded stock on both platforms.
Sunil Singhania, a Dalal Street veteran and founder of Abakkus Asset Manager LLP, tweeted that his son, Ujjwal Singhania, had bought and received staggering returns on shares of GameStop and AMC Entertainment Holdings. He soon deleted the tweet.
"What's happening with $GME and /r/wsb shows that we're not even close to fully comprehending how decentralized online communities can disrupt traditional industries via the network effect," read a tweet by his son Ujjwal.
Given that American stocks recovered faster than India's markets from a crash caused by the COVID-19 pandemic, Indians have made significant bets on US equities this year despite India's highly restrictive cross-border investment laws.
Usually, Indian investors venturing into US stocks favor top global companies like Apple, Amazon, Facebook, and Tesla in a bid to diversify their Indian holdings.
Why GameStop surged?
Some retail traders — part of the sub-Reddit — noticed that hedge funds such as Melvin Capital held significant short positions and decided to challenge them by buying and keeping the stock. A powerful short squeeze in the stock was caused by their strategy and resulted in the stock offering over 1700% returns till January 27.
Billionaire Elon Musk, world's second wealthiest, who overtook Amazon's Jeff Bezos to become world's richest earlier this year in a tweet said, "u can't sell houses u don't own u can't sell cars u don't own but u *can* sell stock u don't own!? this is bs – shorting is a scam legal only for vestigial reasons."