Satyam's accounting fraud spooks market; Satyam plunges 78%

Just as the market was recovering somewhat, India's fourth largest IT firm Satyam Computer's explosive revelations send the Sensex on a southward spiral. Satyam shares plunged a whopping 77.69% as chairman Ramalinga Raju resigned after announcing during trading hours today, 7 January 2009, that the company's accounts were inflated artificially. The investors are indeed having a tough time. The BSE 30-share Sensex plunged 749.05 points, or 7.25%, shedding close to 880 points from the day's high.

As per the provisional data released by the stock exchanges after trading hours, foreign institutional investors (FIIs) today, 7 January 2009, dumped shares worth Rs 1,111.25 crore and domestic funds sold shares worth Rs 505.49 crore.

Heavy selling was witnessed in index heavyweights Reliance Industries, ICICI Bank and Larsen & Toubro. The Sensex fell below the psychological 10,000 mark and S&P CNX Nifty fell below the psychological 3,000 mark. All the sectoral indices on BSE were in the red. The market breadth was extremely weak.

Satyam tanked 77.69% to Rs 39.95 after Raju confessed of reporting inflated figures in the accounts of the firm. Around 47.30 crore shares or, 70.19% of Satyam's equity, was traded on the BSE and the NSE combined. 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.

As per reports, the government will examine the role of Satyam's auditors and directors and the stock market regulator Securities & Exchange Board of India (Sebi) said it will take urgent action. Sebi chairman C B Bhave told a television channel that the market regulator was in touch with the Ministry of Corporate Affairs regarding action to be take against the IT firm.

The stock had surged 7.31% on Tuesday, 6 January 2009 after the company denied media reports that Tech Mahindra was considering an all-share merger deal with the company.

The BSE 30-share Sensex plunged 749.05 points, or 7.25%, to 9,586.88. The Sensex fell 825.78 points at the day's low of 9,510.15 in afternoon trade.

Earlier in the day and before the Satyam's revelation which hit the market in mid-morning trade, the broad market had surged on firm Asian stocks, reports that state-run banks are likely cut lending rates further next month and on reports of slowing pace of decline in exports. The Sensex rose 133.79 points at the day's high of 10,469.72 in early trade.

The S&P CNX Nifty fell 192.40 points, or 6.18%, to 2,920.40.

As per reports, the pace of decline in India's export is slowing. Exports are estimated to have fallen by a more modest 1.6% in December 2008 as against 12.1% for October 2008 and 9.9% for November 2008. As per reports, robust export growth in segments like pharma, engineering and agri commodities has offset dismal performance from sectors like textiles, gems & jewellery, handloom and chemicals.

The market breadth, indicating the overall health of the market, was weak in contrast a strong breadth earlier in the day. On BSE, 414 stocks advanced and 2,111 stocks fell. A total of 57 stocks remained unchanged.

The BSE clocked a turnover of Rs 5,817 crore, higher than Rs 4,700.98 on Tuesday 6 January 2008.

Nifty January 2009 futures were at 2911, at a discount of 9.40 points as compared to the spot closing of 2920.40. Turnover in NSE's futures & options (F&O) segment soared to Rs 59,555.20 crore, from Rs 39,420.34 crore on Tuesday, 6 January 2009.

The BSE Sensex had risen 1,007.01 points or 10.79% to 10,335.93 on 6 January 2009 from a recent low of 9,328.92 on 26 December 2008. The BSE Sensex had lost 52.45% in the calendar year 2008.

The BSE Mid-Cap index was down 7.17% while BSE Small-Cap index was down 6.29%. Both the indices outperformed the Sensex.

The BSE Realty index (down 16.95%), the BSE Oil & Gas index (down 9.35%), the BSE IT index (down 9.32%), the BSE Bankex (down 8.06%), the BSE Teck index (down 7.77%), underperformed the Sensex.

The BSE FMCG index (down 2.08%), the BSE Auto index (down 3.63%), the BSE HealthCare index (down 4.1%), the BSE PSU index (down 5.28%), the BSE Consumer Durables index (down 5.46%), the BSE Power index (down 5.5%), the BSE Metal index (down 6.38%), the BSE Capital Goods index (down 6.72%), outperformed the Sensex.

IT pivotals, other than Satyam Computer, cut intraday losses as investors shifted positions from Satyam in favour of other IT pivotals to maintain overall portfolio weightage to the sector. India's second largest IT exporter by sales Infosys rose 1.67% to Rs 1,187.10, recovering from the day's low of Rs 1,147. India's third largest IT exporter by sales Wipro was up 0.23% to Rs 243.30, off the day's low of Rs 228. India's largest IT exporter by sales Tata Consultancy Services was down 0.78% to Rs 503.70, off the day's low of Rs 466.20.

A weaker rupee further aided the recovery of IT stocks. The Indian rupee weakened from early trade levels on Wednesday due to dollar demand from foreign funds following a steep fall in the main stock index after Satyam said its profit had been inflated. The partially convertible rupee was at 48.75 per dollar, compared with Tuesday's close of 48.66/69. A weaker rupee benefits IT firms as they earn most of their revenues from exports.

Realty shares slumped on reports recent steps taken by the government to boost the housing sector are not enough to boost housing demand. DLF, Housing Development & Infrastructure, Indiabulls Real Estate and Unitech fell by between 16.15% to 21.45%.

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 fell on fears of rising defaults in a slowing economy. India's largest private sector bank by net profit ICICI Bank fell 10.53% even as its American depository receipt (ADR) gained 4.76% on Tuesday, 6 January 2009. The bank had recently cut its main lending rates by 50 basis points from Wednesday, 31 December 2008.

India's biggest bank in terms of total assets and branch network, State Bank of India fell 6.46%. India's second largest private sector bank by net profit HDFC Bank slipped 8.12%.

India's largest dedicated housing finance firm by operating income HDFC fell 3.33%.

Metal stocks fell on profit taking after a recent solid surge. Hindalco Industries, Steel Authority of India, National Aluminum Company and Sterlite Industries fell by between 4.33% to 7.93%. The BSE Metal index fell 6.38% to 5,605.24. From the recent low of 4950.22 on 26 December 2008, the BSE Metal index had risen 20.95% to 5,987.46 on 6 January 2009.

World's sixth largest steel maker Tata Steel fell 5.31% 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.

Capital goods stocks fell on worries a slowing economy will crimp orders. Larsen & Toubro, Bharat Heavy Electricals, Praj Industries, Thermax, ABB fell by between 2.1% to 12.7%.

Auto stocks fell as high interest rates and sluggish consumer spending have dented demand. Tata Motors, Maruti Suzuki India, Hero Honda Motors, Mahindra & Mahindra fell by between 1.72% to 7.03%.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) fell 12.52% to Rs 1,196.80 on worries fall in crude oil prices would dent operating margins of the firm.

Crude oil fell for a second day before a report which is forecast to show that crude inventories increased in the US as its economy contracted. Oil for February delivery declined as much as 97 cents, or 2 %, to $47.61 a barrel in electronic trading on the New York Mercantile Exchange. Oil has declined sharply from the record high of $147 per barrel hit in July 2008.

India's largest oil exploration firm by revenue ONGC fell 4.1% on reports its overseas unit ONGC Videsh (OVL) is raising about Rs 5250 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%.

India's largest FMCG major by sales Hindustan Unilever rose 1.95% on a defensive buying.

Telecom stocks extended recent losses on concerns of tighter profit margins due to stronger competition. India's second largest telecom services provider by sales Reliance Communication fell 17.02%. It recently announced a nationwide rollout of its GSM-based cellular services during trading hours on 30 December 2008.

India's largest telecom services provider by sales Bharti Airtel slipped 1.17% on fears the company may reduce tariffs to retain costumers following an aggressive nationwide rollover of the GSM-based cellular services by Reliance Communication (RCom).

PSU OMCs fell after oil minister Murli Deora today, 7 January 2009, said the government may cut fuel prices again to pass on the benefit of the fall in international crude oil prices to consumers. Hindustan Petroleum Corporation, Bharat Petroleum Corporation and Indian Oil Corporation fell by between 1.67% to 3.45%.

State-run oil firms are making profit on retail sale of petrol and diesel thanks to a fall in oil prices from a record high of above $147 a barrel in July 2008. They, however, continue to make losses on sale of kerosene and liquefied petroleum gas (LPG).

Satyam Computer Services clocked the highest volume of 14.3 crore shares on BSE. Suzlon Energy (30.85 lakh shares), Unitech (28.75 lakh shares), Jaiprakash Associates (28.54 lakh shares) and Reliance Natural Resources (19.29 lakh shares) were the other volume toppers in that order.

Satyam Computer Services clocked the highest turnover of Rs 916.58 crore on BSE. Reliance Industries (Rs 459.12 crore), Jaiprakash Associates (Rs 235.93 crore), ICICI Bank (Rs 228.74 crore) and Reliance Capital (Rs 191.59 crore) were the other turnover toppers in that order.

Asia-Pacific stocks were mostly higher on Wednesday, 7 January 2009, on hopes for a US economic stimulus package. Key benchmark indices in Japan, South Korea, Australia and Taiwan were up by between 1.32% to 1.74%. The key benchmark indices in China, Singapore and Singapore fell by between 0.68% to 3.37%.

But European shares declined on Wednesday, reversing a six-session rising trend, as oil shares slipped, tracking weaker oil prices, while banks were under pressure due to worries about a deep economic downturn. Key benchmark indices in Germany and UK were down by between 0.81% to 1.41%. While France's CAC 40 rose 0.08%.

US stocks gained on Tuesday, 6 January 2009, on the increased likelihood of a government stimulus package after the release of minutes from the last Federal Reserve policy meeting painted a dismal picture of the US economy. The Dow Jones industrial average was up 62.21 points, or 0.69%, to 9,015.10. The Standard & Poor's 500 Index gained 7.25 points, or 0.78%, to 934.70. The Nasdaq Composite Index added 24.35 points, or 1.5%, to 1,652.38.

US President-elect Barack Obama's proposed package of spending and tax-cut measures is estimated at nearly $775 billion over the next two years. Data released on Tuesday showed that pending sales of US homes dropped in November 2008 to their lowest level in at least seven years and that the country's services sector shrank for the third consecutive month in December 2008.