Indian Stocks Decline for Second Day After Satyam Scandal

By Pooja Thakur

Jan. 9 (Bloomberg) -- India’s Sensitive index fell for a second day, as Satyam Computer Services Ltd. extended declines on concern it may have insufficient funds after Chairman Ramalinga Raju said he falsified accounts.

Satyam dropped 41 percent, taking its losses to 87 percent since Raju on Jan. 7 said he inflated earnings and assets by $1 billion. Larsen & Toubro Ltd., which owns a 3.95 percent stake in Satyam, dropped 7 percent, the most in almost three months, as the value of its investment in the software developer fell. India’s markets were closed for a holiday yesterday.

“The Satyam incident is very negative and will be viewed as such by foreign institutional investors,” said Ajay Bodke, who helps manage the equivalent of $870 million in stocks at IDFC Assets Management Co. in Mumbai. “This puts a question- mark on the financials of many other companies.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 1.9 percent to 9,406.47. The index dropped 5.5 percent this week. The S&P CNX Nifty Index on the National Stock Exchange slid 1.6 percent to 2,873. The BSE 200 Index declined 2.1 percent to 1,124.65. Nifty futures for January delivery fell 1.8 percent to 2,861.05.

Aberdeen Asset Managers Ltd. and its units sold blocks of Satyam Computer on Jan. 7, data from exchanges showed. Fidelity Management & Research Co., Swiss Finance Corp. (Mauritius) Ltd. and Morgan Stanley Mauritius Co. also sold shares, exchange data showed. Aberdeen was Satyam’s largest institutional investor as of Sept. 30, according Satyam’s exchange filings.

‘Not Very Encouraging’

Satyam dropped 41 percent to 23.75 rupees. Interim Chief Executive Officer Ram Mynampati said yesterday the fourth- largest Indian software-services provider may have to restate earnings and he couldn’t be sure the company had enough cash for this month. “Our liquidity position is not very encouraging,” Mynampati said.

Larsen, India’s largest engineering company, declined 7 percent to 720.85 rupees, the lowest since Dec. 3. Larsen has no plans to sell its holding in Satyam, CNBC TV-18 reported, citing Chairman A. M. Naik.

Credit Suisse Group and other brokerages are still advising investors to buy Indian stocks. Credit Suisse maintained its “overweight” recommendation on the Indian market today, while Macquarie Group Ltd. raised it to “overweight” from “neutral.”

The market’s rating was also raised to “neutral” from “underweight” yesterday at JPMorgan Chase & Co., which said the drop in share prices provided an “attractive buying opportunity.”

Corporate Governance

Tata Consultancy Services Ltd., India’s largest software- services provider, gained today on expectation it will gain market share as clients desert Satyam after its chairman falsified earnings.

“Companies with high corporate governance standards will stand to benefit from the Satyam episode,” said Bodke at IDFC. “Satyam’s rivals will win orders at its expense.”

Tata Consultancy added 6.4 percent to 536.95. Rival Wipro Ltd. climbed 2.6 percent to 250.95.

Infosys Technologies Ltd., India’s second-largest provider of software services, gained 1.3 percent to 1,203.4 rupees. The stock is among those recommended by Credit Suisse analysts Nilesh Jasani and Arya Sen, who said investors should own shares of Indian companies with “good corporate governance.”

“If Satyam turns out to be an isolated incident, it will be forgotten by investors after a few weeks,” the analysts said. “Investors should focus less on sector allocation or standard quantitative parameters for stock selection and more on management quality.”

Reliance, Tata Steel

Stocks that recorded the biggest declines on the Sensex today include Reliance Communications Ltd., India’s second- largest phone-service provider, and Tata Steel Ltd., the nation’s biggest maker of the alloy. Sterlite Industries (India) Ltd., the No. 1 copper producer, fell 10 percent to 271.9 rupees, the most since Nov. 11.

Reliance Communications fell 9.5 percent to 186.85 rupees, the lowest since Nov. 20. Tata Steel dropped 8 percent to 215 rupees, the most since Nov. 11. DLF declined 7.5 percent to 216.35 rupees. Reliance Industries Ltd. slid 4 percent to 1,153.25 rupees, while Jaiprakash lost 4.2 percent to 68.50 rupees.

Overseas funds bought a net 4.45 billion rupees ($91 million) of Indian stocks on Jan. 6, the nation’s market regulator said.

The following were among the most active shares traded on the Bombay and National stock exchanges. Stock symbols are in parentheses after company names:

Punj Lloyd Ltd. (PUNJ IN) dropped 23 rupees, or 17 percent, to 115.35, its lowest since July 2006. The Indian engineering company fell after saying its U.K. unit began court proceedings against SABIC Petrochemicals U.K. Ltd. seeking 28.5 million pounds ($43 million) compensation.

With the compensation dispute now into the adjudication process, the entire amount is less likely to be recovered and Punj Lloyd could be hit by as much as 3.2 rupees per share, J.P. Morgan Securities Inc. said in a note to clients today.

Tata Motors Ltd. (TTMT IN) fell 8.4 rupees, or 4.8 percent, to 165.75. India’s biggest truckmaker will stop production at a commercial-vehicle factory for six days as higher borrowing costs stymie demand. The Jamshedpur plant in eastern India will close from Jan. 12 to Jan. 17, Debasis Ray, a company spokesman, said in an e-mail today.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net