The Hindu Business Line : Brokerages drop Satyam coverage

Mumbai, Jan. 7 Several brokerage firms have dropped coverage on Satyam Computer Services with immediate effect following the stunning disclosures related to accounting discrepancies made by Mr B. Ramalinga Raju, the Chairman of the Hyderabad-based company.

In fact, almost every brokerage firm in the country had put a “sell recommendation” on the stock in the past few weeks.

Firms such as Angel Broking, India Infoline Financial Ltd and Credit Suisse have informed their clients that they will no longer track shares of Satyam.

“The current financials of Satyam cannot be relied upon. As such, we are unable to issue any further investment advice on Satyam and are suspending our coverage of the stock,” Mr Bhuvnesh Singh and Mr Sunil Tirumalai, analysts with Credit Suisse, said.

Medium-Term effect

Angel Broking described the Satyam chaos as India’s Enron. Mr Raju may have “relieved the burden on his conscience” by bringing to light one of the biggest-ever frauds in Indian corporate history, it said. (But) the crisis is likely to have a medium-term repercussion in terms of the global perception of Indian companies and local and global investor confidence in Indian stock markets.

Researchers at Emkay Global Financial Services said that the development would inflict collateral damage on the sector’s premium valuations vis-À-vis broader markets and dent foreign investors’ faith in Indian companies.

‘Dark day’

Mr Amar Ambani, Vice-President (Research) of India Infoline Financial Services, said: “Our last call on Satyam was a sell, in our report dated December 26, 2008. Now we drop coverage on the stock with immediate effect.”

He said this was a “dark day” for India and probably the biggest corporate scam for a company of this stature.

“This episode has the potential of severely dampening FII and FDI sentiments towards India. While it would be wrong to paint all companies with the same brush, in an already dull and bearish economic environment, such events can have a prolonged impact on trade and sentiment,” he pointed out.

Echoing a similar sentiment, Religare Hichens Harrison felt that in the short run, Satyam’s accounting fraud is likely to increase woes for the Indian technology sector, which is already facing a growth slowdown.

“We believe that clients would increase their due diligence while choosing India-based IT services vendors for projects,” it said.

Franklin Templeton Investments said though India continues to rank high in terms of corporate governance, the Satyam issue will have an impact on the perception of corporate governance levels in the country.

“However, we need to keep in mind that history has shown that boom or bust cycles tend to throw up such governance failures in various countries. Enron, Vivendi, Parmalat, Daewoo, Worldcom and Livedoor are examples,” it said.

Grant Thornton felt that this incident indicated a “clear lack of focus on audit quality as the key issue by the ICAI. All ICAI laws try and focus on dispersal of work among the 1.5 lakh CAs, as opposed to audit quality.”

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There is a hole in my books, dear investor