The stock of Satyam Computer Services may be removed from the Sensex, the 30-stock benchmark index of the Bombay Stock Exchange (BSE), after the company’s Chairman and founder Ramalinga Raju today revealed manipulation of its accounts.
While a BSE spokesperson refused to comment, brokers said the stock would hold little interest for investors following this episode. The BSE considers listed history, trading frequency, final rank, market capitalisation weightage, industry/sector representation and track record while selecting Sensex constituents.
“There is a churn in the index after every market boom. So, it is likely that this stock is left out of the Sensex at the next review,” said Gaurav Dua, head of research at Sharekhan. The BSE Index Committee does a periodic review of the Sensex constituents. Shares of Satyam Computers fell 77.69 per cent to close at Rs 39.95 a share in Wednesday’s trading session, taking its market capitalisation down to Rs 2,692 crore.
Meanwhile, even as the drama over Raju’s revelations and resignation unfolded on Wednesday, key brokerages were quick to drop the stock from their coverage.
Several domestic as well as foreign broking houses such as Religare Hichens Harrison, India Infoline, Emkay Global Financial Services and Credit Suisse have suspended coverage of Satyam, citing that the “current financials of the company cannot be relied upon”.
Raju today said the company’s profits had been inflated over the last several years.
“As such, we are unable to issue any further investment advice on Satyam and suspend our coverage of the stock,” said Credit Suisse, which had an underperform rating on the share earlier. Religare Hichens Harrison has gone a step further to say that this development would make Satyam unattractive for any competitor or a private equity player to take over the company.
For Satyam, the long-term outlook remains negative as client and employee attrition would rise significantly in coming quarters due to the adverse impact of the developments. In the short term, a lot of Satyam’s clients would migrate to competitors like Infosys, TCS and Wipro, the brokerage said.
Stocks of Infosys Technologies and Wipro today rose by 1.67 per cent and 0.23 per cent respectively on anticipation that these companies would gain from the business that Satyam was likely to lose.
Domestic brokerage Angel broking called this episode “India’s Enron” and went on to say that apart from the immediate impact, it would have medium-term repercussions in terms of global perception of Indian companies and local and global investor confidence in Indian stock markets.
India Infoline has also dropped the Satyam Computer stock from its coverage with immediate effect. “This episode has the potential of severely dampening FII and FDI sentiment towards India,” said Amar Ambani, Vice-President (Research) at India Infoline.
According to a report from Emkay Global Financial Services, the Satyam episode will lead to high chances of collateral damage to the sector’s premium valuations as well as the Indian market. “We had been arguing over the past few days that Satyam’s ‘low market cap, high cash balance’ was an appeal for both strategic/financial investors given Satyam’s strong offshore capabilities and notable client roster. However, with the damaging revelations from the company, we believe that the argument does not hold any longer. We suspend our rating and target price on the stock,” the Emkay report said.
