Reddit India forum dreams of infamous stock manipulator GameStop

In the bustling online forums of Indian retail investors, a wild yet intriguing idea has taken root: the possibility of replicating the infamous GameStop saga in the Indian market with the Sensex doubling in five years from 40K to 80K. The discussions are fervent, fuelled by the success of the American retail army that shook Wall Street. Yet, there's a mix of enthusiasm and caution as Indian investors contemplate the risks and rewards of such a coordinated effort.

It all started with a simple question posed by a user: "What if we all decide to invest in a company at the same time?" The subtext was clear—could the collective power of retail investors move the needle on a stock with a low market cap and limited float? The response was immediate and enthusiastic, with numerous users chiming in on the feasibility of such a venture.

One member saw merit based on the numbers in the forum. "The sub has 600k members. Let's say half of them are active and further half have the means to participate in this tomfoolery. So 150k? Let's say everybody decides to put 10k which means you've 150 crores." The plan seemed plausible, especially if they targeted a smaller company rather than giants such as Reliance.

The discussion quickly moved to identifying the right target. Some suggested smaller companies with low free floats, where a coordinated buying effort could significantly impact the stock price where fundamentals didn't matter much. "We need a company which has a low free float... the free float is only ~ 20cr, if we unite then we can moon this stock beyond 10000 levels easily," mentioned one user.

Others shared the sentiment, suggesting various stocks that could be prime candidates for this experiment.

The worry

Despite the excitement, there was a palpable sense of caution. One user noted: "Love how a potential pump and dump scheme is being discussed right in front of my eyes." The legality of the plan was a major concern, with several users warning about the Securities and Exchange Board of India's (SEBI’s) potential intervention. "SEBI will pick us all up, but won't move a finger against actual operators." The fear of regulatory backlash was a common theme, with many users joking about SEBI knocking on their doors if they attempted such a maneuver. As one member humorously put it: "…be careful while opening the door if someone rings."

Amid the technical and legal concerns, an ethical debate also emerged where a user commented: "I feel that if we do this, it has to be for a noble cause and not just for fun's sake." The idea of manipulating the market for profit clashed with the potential consequences for other investors and the overall integrity of the market.

Ultimately, the discussion highlighted the complexities of trying to replicate the GameStop phenomenon in India. The Indian stock market is heavily regulated, and any sign of manipulation could attract swift and severe penalties from SEBI. Additionally, the logistics of coordinating such a large group of investors and ensuring unity in action and timing posed significant challenges.

Shankar Sharma, co-founder of FirstGlobal, believes the whole premise of the idea by the forum is wrong. “GameStop went up because there was a significant short interest. It was a short squeeze, not just a long trade. That's the big difference. In India, you can't short in the cash market, so there's no way to create a similar squeeze. The initial momentum is provided by buyers, but the heavy lifting is done by the short sellers covering their positions,” says Sharma.

It’s all in the shorts

In early 2021, GameStop, a struggling brick-and-mortar video game retailer, became the focus of an unprecedented short squeeze orchestrated by retail investors, largely coordinated through the subreddit r/WallStreetBets. These investors aimed to push up the stock price, forcing short sellers to cover their positions, which would drive the price even higher that left hedge funds and professional investors who were short facing substantial losses. “In a short squeeze, you don't need much capital; you just need to get the ball rolling. Short sellers have limited loss-taking ability, so they drive the price up as they cover,” says Sharma.

After reaching a peak of nearly $500 in late January 2021, the price saw extreme volatility. It eventually settled at much lower levels, currently at $24 levels, although it remained above its pre-squeeze prices for some time. Some early retail investors who bought the shares at low prices and sold at or near the peak made significant profits as the price skyrocketed from a low of $20. In doing so, stock influencer Keith Gill amassed over a million followers across his YouTube channel “Roaring Kitty” and Reddit page “DeepF***ingValue”, before going underground. He resurfaced on X in May this year, triggering a meme fest. Gill faced a lawsuit by a GameStop shareholder over engaging in a ‘pump and dump’ scheme, though it was dropped within days of its filing.

The idea of Indian retail investors emulating the GameStop saga reflects a broader trend of growing social media influence through collective action as the idea originator put it: “... it'd be so cool if we could pull this off." Whether or not such a coordinated effort will ever materialise, the debate underscores the evolving dynamics of retail investing in India. “You need substantial buying power to take the stock up and maintain it. If you push it up for a few days and then leave, there's no exit. It's manipulation because you're artificially inflating the stock without fundamentals,” clarifies Sharma. In fact, SEBI has sounded out the alarm bells over excessive speculation in some small and mid-caps.

Given that the regulator has cracked down heavily on so called influencers and TV anchors for playing dirty, it's unlikely that a Reddit Indian army can make a sensation. The reality is that despite crackdown and curbs, operators in collusion with the promoters of micro and small caps have been playing the game to perfection back then and will continue to do so in the future – retail investors will always be the pigs that get slaughtered.