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Thursday, January 8, 2009

Satyam Stock Disaster - What's Ahead?

B Ramalinga Raju — the founder of Satyam Computers, one of India’s largest IT companies — dropped a bombshell when he sent a five-page letter to the stock exchanges confessing to one of the biggest frauds ever seen.

Satyam had nothing by way of a balance sheet and it had been cooking its books for the last many quarters, fabricating lies for the benefit of all its shareholders, for its independent directors and other directors and perpetrating a lie that went through for several years before he chose to confess this morning.

Satyam stock lost 75% of its market cap, a huge collateral damage took place across the market that tanked 750 points raising a lot of apprehensions about how the world would see it both for the IT services sector, the Indian corporate sector and its standards of governance and also to how FIIs would react to such an episode.

Shankar Sharma of First Global sees the stock going to zero levels, "probably by the next trading session because there is still 100% to be lost even from these prices." He added, "I firmly believe that no company in its right senses will want to go and take a look at its books, or try and look at it as an acquisition candidate because it is a loss-making company." Read: Satyam Computers Stock - Assessment

Ramesh Damani, Member, BSE, believes that this quarter markets will not be able to cross the high of 10,500 that the Sensex made early morning today. "I agree with Shankar Sharma that someone could bottom fish and make a few bucks on Satyam but it is pointless. But I disagree with him on the stock going to zero because for some reason in India, stocks don’t go to zero even when the companies go bankrupt, even when they languish for years."
Read: Satyam Computers Stock - Ramesh Damani's View
Source: Moneycontrol

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