Business & Investment

Bidding in India like GameStop.Don’t worry, it’s a desperate case

Mumbai: A story from Wall Street that retailers have become millionaires within a few weeks by buying and holding shares in the following microcap companies: GameStop, AMC Entertainment With Holdings BlackBerry Inducing short-term pressure by large institutional investors has emerged worldwide.

The story of GameStop is after discovering that if a number of retailers who are part of the Reddit group called “Wall Street Bets” buy and hold shares in heavy short positions, the short sellers will be: It has become the center of the world financial markets. I was forced to run from pillar to pillar and cover the position. The result is a huge short squeeze that you’ve never seen even on Wall Street.

Stocks of video game retailers, which had been sleepwalking towards bankruptcy for some time, rose more than 900 percent in January alone due to short pressures.

A short cell is when a trader who expects a stock price to fall due to weak underlying assets sells without owning the stock, and when the price goes down, buys securities at a low price and puts the difference in his pocket. is.

Conversely, if the stock price moves in the opposite direction, the trader will need to buy the security at an available price to reduce losses. More importantly, the shares need to be delivered to the person who sold them, so we respect the transaction. at first.

This situation is called “short squeeze” and it is the source of spectacular profits. GameStop Stock..

Even in India, some Internet forums on Reddit, Discord, Telegram and WhatsApp are full of retailers and now aim to duplicate their siblings on the other side of the Atlantic.

One of the hottest topics in one such forum, called “Indian Street Bets,” a Reddit group with about 12,000 members, is “tin in the month” by raising prices through coordinated purchases by members. Send a stock of Ron Energy. ”

However, market watchers say such attempts to buy and hold to trigger a short squeeze of “all mothers” in the Indian market are futile. Because no one in India holds such a big bare short position in individual stocks. Equities are not part of the derivatives segment.

In India, stock shorts are a tedious task as the Securities and Exchange Commission of India (Sebi) imposes various regulations. Philosophically, short cells have been disliked as a convention in India, but that’s another day.

Traders can short stocks, but they cannot hold positions in multiple trading sessions and must be forced to cancel at the end of the day. To avoid this hurdle, most traders and institutions operating in India limit short positions to equities that are part of the derivatives segment. This includes only 140 of the more than 2,000 shares listed and traded on the National Stock Exchange.

Even within the F & O segment, traders have to pay a high price to hold a short position. Currently, the futures segment has a maximum contract term of 3 months. This means that if a trader holds a position for an extended period of time, he or she will have to pay a commission in the form of a rollover cost to carry over the position.

However, to avoid this problem, there is a securities lending mechanism introduced by the stock exchange in 2008. This mechanism allows traders to borrow up to one share to open a short position and pay interest to the lender. The deadline for holding a security and holding a position is 12 months.

However, this mechanism also failed for several reasons. It wasn’t until 2018 that I got the attention after the IL & FS saga. This has created several opportunities to make money in the Indian stock market through short positions.

“First, the lender’s income is considered” income from other sources of income, “so the lender must file a tax return using ITR3 and may need to be audited. Whenever there is a corporate action, such as a rights or bonus issue, there is a forced termination of the position, “Zerodha co-founder Nithin Kamath wrote in a blog post.

Zerodha said it is working to provide the SLB platform to all customers over the next few months as it aims to mitigate back-end challenges related to the mechanism.

But more importantly, in the F & O segment, traders are guaranteed leverage and liquidity and can be ally or enemy depending on which side of the deal they are on. Liquidity is generally lost in the SLB segment. Market capitalization ladder.

Even in the F & O segment, the violent movements seen in GameStop and BlackBerry stocks are not easy to reproduce in India. This is because Sebi puts limits on the entire market position and on a case-by-case basis to prevent repeated anomalies.

So the bad news for members of “Indian Street Bets” trying to create a GameStop-like phenomenon in India through Suzlon Energy is that it’s difficult and almost impossible if the F & O segment is out of stock. is.

In India, buying and holding for long-term value creation is the only way for US retail investors to generate the kind of wealth they have accumulated to become the envy of the world. However, buying and holding are strategies that require patience and time, and both are lacking in the current liquidity-driven bull market.

Bidding in India like GameStop.Don’t worry, it’s a desperate case Bidding in India like GameStop.Don’t worry, it’s a desperate case

Back to top button