Satyam accounting scam spooks market; Sensex sheds 5.5%

Key benchmark indices edged lower in a truncated week as investors confidence was shaken by IT major Satyam Computer's mega accounting scandal which came to light on Wednesday, 7 January 2009. Volatility was high throughout the week.

The BSE 30-share Sensex lost 551.75 points or 5.54% to 9,406.47 in the week ended Friday, 9 January 2009. The S&P CNX Nifty slipped 173.75 points or 5.70% to 2873 in the week.

The BSE Mid-Cap fell 270.39 points or 7.97% to 3,120.79 and the BSE Small-Cap index slipped 314.85 points or 8.13% to in the week. Both these indices underperformed the Sensex.

The barometer index BSE Sensex is down 11800.30 points or 55.64% from its all-time high of 21,206.77 struck on 10 January 2008.

Trading for the week started on an upbeat note as coordinated fiscal and monetary measures by policymakers over the weekend to boost sagging growth and firm global markets boosted the domestic bourses on Monday, 5 January 2009. The BSE 30-share Sensex rose 317.38 points, or 3.19%, to 10,275.60 and the S&P CNX Nifty rose 74.70 points, or 2.45%, to 3,121.45 on that day.

Key benchmark indices showed a divergent trend on Tuesday, 6 January 2009, with the Sensex rising and the broader-based S&P CNX Nifty declining. The trading session was choppy with the market caught between concerns about Q3 results and coordinated fiscal and monetary measures by policymakers to boost sagging growth. The BSE 30-share Sensex was up 60.33 points, or 0.59%, to 10,335.93. The S&P CNX Nifty fell 8.65 points, or 0.28%, to 3,112.80, on that day.

India's fourth largest IT firm by sales Satyam Computer's shocking accounting scam estimated at over Rs 7,000 crore sent the market tumbling on Wednesday, 7 January 2009. The BSE 30-share Sensex plunged 749.05 points, or 7.25%, to 9,586.88 and the S&P CNX Nifty fell 192.40 points, or 6.18%, to 2,920.40, on that day.

The financial markets were closed on Thursday, 8 January 2009 on account of Moharum.

Caution ahead of US non-form payroll data for December 2008 and fragile sentiment post IT major Satyam Computer's massive accounting scandal weighed on the market on Friday, 9 January 2009. The BSE 30-share Sensex lost 180.41 points, or 1.88%, to 9,406.47 and the S&P CNX Nifty fell 47.40 points, or 1.62%, to 2,873, on that day.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) lost 10.35% to Rs 1151.05 in the week on worries the recent steep fall in crude oil prices would dent refining margins of the firm.

India's largest oil exploration firm by revenue ONGC fell 1.40% to Rs 670.50 on reports its overseas unit ONGC Videsh (OVL) is raising about Rs 5,250 crore from Citibank India to partly fund its recent $2.1 billion acquisition of UK's Imperial Energy, an oil exploration firm. OVL will issue one-year commercial paper, which will carry an interest of 8.15%.

Satyam Computer Services slumped 86.57% to Rs 23.85, after tumbling to a 52-week low of Rs 11.50 on 9 January 2009 after Chairman Raju, on Wednesday, 7 January 2009 confessed of reporting inflated figures in the accounts of the firm.

Raju said the Q2 September 2008 results reported operating margin of about Rs 649 crore versus actual Rs 61 crore. He further said that the balance sheet as on 30 September 2008 included understated liability of Rs 1230 crore. He also said the balance sheet as on that day included inflated cash and bank balances of Rs 5040 crore.

No board member had any knowledge of the real situation of the books, Raju said. He further said the failed Maytas deal was a last attempt to fill fictitious assets with real ones. In mid-December 2008, Satyam had scrapped a deal to acquire Maytas Properties and Maytas Infrastructure, companies run by Raju's sons B Rama Raju and Teja Raju as the plan angered Satyam investors.

Satyam's loss translated into gains for other IT pivotals as investors churned positions to maintain overall portfolio weightage to the IT sector. India's second largest IT exporter by sales Infosys rose 5.62% to Rs 1195.10. Infosys Technologies will unveil its Q3 December 2008 earnings on 13 January 2009.

India's third largest IT exporter by sales Wipro rose 3.19% to Rs 250.65. India's largest IT exporter by sales Tata Consultancy Services rose 7.71% to Rs 535.65.

Realty shares fell on market perception that a number of realty firms do not strictly follow good corporate governance practices. DLF (down 27.61% to Rs 217.60), Housing Development & Infrastructure (down 26.76% to Rs 104.80), and Unitech (down 22.63% to Rs 35.90) fell.

In an effort to boost the cash-starved realty sector, the government on 2 January 2009 allowed the developers of integrated townships to borrow funds from overseas and also asked states to release land for low- and middle-income housing schemes. Earlier, as part of the first stimulus package announced last month, the public sector banks had lowered rates on home loans up to Rs 20 lakh.

Banking stocks slumped on fears of rising defaults in a slowing economy. India's largest private sector bank by net profit ICICI Bank declined 3.47% to Rs 454.85. India's biggest bank in terms of total assets and branch network, State Bank of India fell 8.58% to Rs 1215.90. India's second largest private sector bank by net profit HDFC Bank slipped 0.35% to Rs 1012.30.

Axis Bank dropped 6.16% to Rs 490 in the week after the bank on Friday, 9 January 2009 said its gross non-performing assets rose 76% to Rs 788 crore in Q3 December 2008 over Q3 December 2007. Axis Bank's net profit rose 63.2% to Rs 500.86 crore on a 62.3% rise in total income to Rs 3716.94 crore in Q3 December 2008 over Q3 December 2007.

Auto stocks were mixed amid hopes a likely reduction in fuel prices and soft interest rates may spur demand for vehicles which is mainly driven by finance. Mahindra & Mahindra (up 8.26% to Rs 311.20), and Maruti Suzuki India (up 7.59% to Rs 584.20), gained. However India's top truck maker by sales Tata Motors fell 6.90% to Rs 163.25 after its heavy commercial vehicle unit in Jamshedpur announced it would go for a six-day block closure from 12 January 2009, in view of the slowdown in demand.

Metal stocks after Goldman Sachs downgraded the world's third largest steel producer POSCO to neutral from buy. Hindalco Industries (down 5.99% to Rs 52.60), and Sterlite Industries (down 0.67% to Rs 273.10), declined.

World's sixth largest steel maker Tata Steel fell 6.60% to Rs 214.50 after the company's sales volume dipped by about 14% to 1.07 million tonnes in Q3 December 2008 over Q3 December 2007 due to the global economic slowdown.

Telecom stocks slipped on concerns of tighter profit margins due to stronger competition following an aggressive nationwide rollover of the GSM-based cellular services by Reliance Communication (RCom), India's second largest telecom services provider by sales. RCom fell 25.44% to Rs 186.65. India's largest telecom services provider by sales Bharti Airtel slipped 9.60% to Rs 637.15.

Cement stocks gained after the government on 2 January 2009 reinstated the countervailing duty on structural cement which will help protect the domestic industry from cheaper imports. ACC (up 1.66% to Rs 501.75), Ambuja Cements (up 4.12% to Rs 71.95), Grasim Industries (up 12.31% to Rs 1360.75), and UltraTech Cement (up 1.18% to Rs 393.85), rose.

Indian largest engineering and construction firm by sales Larsen & Toubro (L&T) slumped 12.46% to Rs 720.10 as the company will incur huge losses on shares of Satyam it bought before the scandal. L&T had bought shares in Satyam earlier this month and holds 3.95% stake in the company, L&T chairman A M Naik said in a television interview on Friday, 9 January 2009.

India's largest drug maker by sales Ranbaxy Laboratories fell 12.53% to Rs 218.90 after Japan's third-largest drugmaker, Daiichi Sankyo Co, said on 5 January 2009 it would book an appraisal loss of 359.5 billion yen ($3.9 billion) on a parent-company basis on its stake in Ranbaxy Laboratories. Daiichi Sankyo paid nearly 500 billion yen for a 63.9% stake it acquired in the major generic drug maker last year.

India's largest FMCG company by sales Hindustan Unilever rose 6.49% to Rs 263.50 on defensive buying.

Inflation has been on a sustained fall since peaking at a 16-year high of 12.91% in the week to 2 August 2008, raising hopes of further softening of interest rates from the Reserve Bank of India. Wholesale Price Index (WPI) based inflation rate fell to a 10-month low of 5.91% in the week ended 27 December 2008 from 6.38% in the previous week, government data released on Friday, 9 January 2009 showed.

The Reserve Bank of India (RBI) after trading hours on Friday, 2 January 2009, cut the repo rate and the reverse repo rate by 100 basis points each, with immediate effect. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks. After the latest cuts, the repo rate is now at 5.5% and the reverse repo is now at 4%, the lowest ever.

The RBI also announced a cut in cash reserve ratio, the proportion of deposits banks must keep with the central bank, by 50 basis points to 5% with effect from 17 January 2009. Lower interest rates may revive the domestic economy which has been slowing faster than expected due to high interest rates and the global financial crisis.

Complementing monetary easing by the RBI, the government enhanced the spending power of states with specific measures to boost credit availability in the second fiscal stimulus package. It offered additional sops to exporters and the small-scale sector, besides raising the level of protection for cement and steel sectors a tad. It has also incentivised purchase of commercial vehicles.

Credit availability has been hiked in a variety of ways, the interest ceiling on external commercial borrowings has been removed; the cap on foreign institutional investments in the domestic corporate debt market has been jacked up two-and-a-half times from $6 billion to $15 billion; a special purpose vehicle is being created to lend to non-banking finance companies to the tune of Rs 25,000 crore; Indian Infrastructure Finance Company is being permitted to raise another Rs 30,000 crore by means of tax-free bonds, and states are allowed to borrow an additional Rs 30,000 crore from the market.

In addition, public sector banks would be given additional capital to the extent of Rs 20,000 crore over the next two years, so they can lend roughly 10 times as much additionally.

The Bank of England (BOE) cut rates to the lowest level in its 315-year history, taking it into uncharted territory as it attempts to ward off a prolonged recession. The BOE cut borrowing costs by 50 basis points to a record low of 1.5% on Thursday, 8 January 2009, amid signs Britain is heading for a deep recession.

The move follows aggressive cuts by other central banks in mid-December 2008. The US Federal Reserve has already slashed its key interest rate to a record low, at a range of zero to 0.25%, while the Bank of Japan has dropped its rate to almost nothing, at 0.1%.