Sensex in India Plunge 7%; Satyam Scandal

123jump.com Staff
07 Jan, 2009
New York City

Stocks in Mumbai plunge after Satyam Chairman admitted inflating balance sheet, cash reserve and sales for the last five year. The fourth largest software export company is also listed on the New York Stock Exchange. The benchmark index Sensex plunges 7%.

[R]10:00AM New York, 7:30 PM Mumbai – Stocks in Mumbai plunge after Sayam Chairman admitted inflating balance sheet, cash reserve and sales for the last five year. The fourth largest software export company is also listed on the New York Stock Exchange. The benchmark index Sensex plunges 7%.[/R]

Indian stocks dropped weighed by news that Satyam has been inflating its balance sheet for the past seven years. Chairman Ramalinga Raju admitted and took a sole responsibility for the action and said that the company reported operating profit ten times the actual result in the last annual report. Price Waterhouse Coopers certified the financial statements.

The Sensex fell below 10,000 and the Nifty slid below 3,000 as investors were unnerved by the scandal. Satyam fell 80% in trading.

Recently the company was mired in a corporate governance case, which saw the World Bank cutting ties with the IT company.

In Mumbai, the BSE 30-share Sensex Index fell 7.3% or 749.05 to 9,586.88, and the CNX Nifty declined 6.2% or 192.40 to 2,920.40.

Of the stocks traded on BSE, 414 rose, 2,111 declined, and 57 were unchanged.

Trading Sentiment

Daily turnover on the BSE increased to 5,817 crore rupees from 4,700.98 rupees yesterday.

Raju Revelations Rock Satyam

Satyam Computer Services Limited Chairman Ramalinga Raju tendered his resignation in a letter to the regulatory authority and to the company board stated that the company’s balance at September 30 has an inflated cash and bank balance of 5,040 crore rupees.

The balance sheet also carries a non-existent accrued interest of 376 crore rupees.

There is also an understated liability of 1,230 crore rupees on funds that were arranged personally by Raju, including an over stated debtors position of 490 crore rupees.

In addition, Raju said for the second quarter ended September 30, the company announced a revenue of 2,700 crore rupees and an operating margin of 649 crore rupees, while actual revenues stood at 2,112 crore rupees and operating margins were 61 crore rupees.

Raju also said the company has been inflating its accounts for the past seven years and the collapsed attempt to purchase Maytas recently was the last attempt to cover the non-existent assets with existent ones.

The outgoing chairman also said he or the managing director sold any shares in the past eight years.

Separately, corporate affairs minister Prem Chand Gupta said the government has allowed U.S. regulator the Securities and Exchange Commission to conduct its own investigations in the Satyam case. The company is also listed on the New York Stock Exchange.

Government has also instructed the Registrar of Companies, Hyderabad, to make an inquiry and submit a report by January 14.

Gupta in connection with the SEC said, “They can take their action. They don''t have to talk to us or seek our permission. They have their legislations, we have ours. It is not overlapping.”

Gainers & Losers

IT stocks were mixed after investors shifted from Satyam to its rivals. Infosys rose 1.7% to 1,187.10 rupees, Wipro increased 0.2% to 243.30 rupees, but Tata Consultancy Services tumbled 0.8% to 503.70 rupees.

The rupee also fell to 48.75 from 48.66 yesterday.

IT stocks dropped. ICICI Bank dropped 10.5%, State Bank of India shed 6.5% and HDFC Bank slid 8.1%.

Commodity stocks declined on profit taking. Tata Steel fell 5.3% after the company reported that its sales volumes plunged 14% to 1.07 million tons in third quarter to December 31 from the comparable period a year ago.

Reliance Industries fell 12.5% to 1,196.80 rupees as crude oil prices for February delivery declined 2 %, to $47.61 a barrel.

ONGC fell 4.1% on news its overseas unit ONGC Videsh is raising about 5,250 crore rupees from Citibank India to fund its recent $2.1 billion acquisition of Imperial Energy based in the UK.

Hindustan Unilever rose 2%.

Telecommunication stocks fell. Reliance Communication lost 17% and Bharti Airtel declined 1.2%.