The Satyam episode drags down indices as investors get into the sell mode.
The Sensex fell for a second day, as Satyam Computer Services extended declines on concern it may have insufficient funds after chairman Ramalinga Raju said he falsified accounts. Satyam dropped 41 percent to Rs 23.75, taking its losses to 87 percent since Raju on January 7 said he inflated earnings and assets by $1 billion. Larsen & Toubro, which owns a 3.95 percent stake in Satyam, dropped 7 percent, the most in almost three months, as the value of its investment in the software developer fell.
“The Satyam incident is very negative and will be viewed as such by foreign institutional investors,” said Ajay Bodke, who helps manage the equivalent of $870 million in stocks at IDFC Assets Management Co. in Mumbai. “This puts a question-mark on the financials of many other companies.”
The Sensex fell 1.9 percent to 9,406.47. The index dropped 5.5 percent for the week. The S&P CNX Nifty Index on the National Stock Exchange slid 1.6 percent to 2,873. The BSE 200 Index declined 2.1 percent to 1,124.65. Nifty futures for January delivery fell 1.8 percent to 2,861.05.
Aberdeen Asset Managers and its units sold blocks of Satyam Computer on January 7, data from exchanges showed. Fidelity Management & Research Co., Swiss Finance Corp. (Mauritius) Ltd. and Morgan Stanley Mauritius Co. also sold shares, exchange data showed. Aberdeen was Satyam’s largest institutional investor as of Sept. 30, according Satyam’s exchange filings.
‘Not very encouraging’
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Interim CEO Ram Mynampati said that the fourth largest Indian software services provider may have to restate earnings and he couldn’t be sure the company had enough cash for this month. “Our liquidity position is not very encouraging,” Mynampati said.
Larsen, India’s largest engineering company, declined 7 percent to 720.85 rupees, the lowest since December 3. Larsen has no plans to sell its holding in Satyam, CNBC TV-18 reported, citing chairman A M Naik.
Credit Suisse Group and other brokerages are still advising investors to buy Indian stocks. Credit Suisse maintained its “overweight” recommendation on the Indian market today, while Macquarie Group raised it to “overweight” from “neutral.”
The market’s rating was also raised to “neutral” from “underweight” yesterday at JPMorgan Chase & Co., which said the drop in share prices provided an “attractive buying opportunity.”
Corporate governance
Tata Consultancy Services, India’s largest software-services provider, gained today on expectation it will gain market share as clients desert Satyam after its chairman falsified earnings.
“Companies with high corporate governance standards will stand to benefit from the Satyam episode,” said Bodke at IDFC. “Satyam’s rivals will win orders at its expense.”
Tata Consultancy added 6.4 percent to Rs 536.95. Rival Wipro climbed 2.6 percent to Rs 250.95.
Infosys Technologies, India’s second-largest provider of software services, gained 1.3 percent to Rs 1,203.4. The stock is among those recommended by Credit Suisse analysts Nilesh Jasani and Arya Sen, who said investors should own shares of Indian companies with “good corporate governance.”
“If Satyam turns out to be an isolated incident, it will be forgotten by investors after a few weeks,” the analysts said. “Investors should focus less on sector allocation or standard quantitative parameters for stock selection and more on management quality.”
Reliance, Tata Steel
Stocks that recorded the biggest declines on the Sensex today include Reliance Communications, India’s second-largest phone-service provider, and Tata Steel, the nation’s biggest maker of the alloy. Sterlite Industries, India’s largest copper producer, fell 10 per cent to Rs 271.9 the most since November 11.
Reliance Communications fell 9.5 per cent to Rs 186.85, the lowest since November 20. Tata Steel dropped 8 per cent to Rs 215, the most since November 11. DLF declined 7.5 per cent to Rs 216.35. Reliance Industries slid 4 per cent to Rs 1,153.25, while Jaiprakash lost 4.2 per cent to Rs 68.50.
Overseas funds bought a net Rs 4.45 billion ($91 million) of Indian stocks on January 6, the nation’s market regulator said.
The following were among the most active shares traded on the Bombay and National stock exchanges. Punj Lloyd dropped Rs 23 or 17 per cent, to Rs 115.35, its lowest since July 2006. The Indian engineering company fell after saying its UK unit began court proceedings against SABIC Petrochemicals UK seeking 28.5 million pounds ($43 million) compensation.
With the compensation dispute now into the adjudication process, the entire amount is less likely to be recovered and Punj Lloyd could be hit by as much as Rs 3.2 per share, J.P. Morgan Securities said.
Tata Motors fell Rs 8.4, or 4.8 per cent, to Rs 165.75. India’s biggest truckmaker will stop production at a commercial-vehicle factory for six days as higher borrowing costs stymie demand. The Jamshedpur plant in eastern India will close from January 12 to January 17, Debasis Ray, a company spokesman said.
The author is a Bloomberg News columnist. The opinions expressed are her own