One of India’s top technology firms – Satyam Computers plunged into deep crises on Wednesday after its chairman B. Ramalinga Raju said the company’s profits had been inflated over the last several years.
The shocking revelation comes after a failed attempt to buy two construction firms in which the company’s founders held stakes. World Bank too recently dropped its ties with the outsourcing company.
Leading Indian brokerages and the Confederation of Indian Industry have expressed their shock and anguish over the latest development.
Confederation of Indian Industry
The Confederation of Indian Industry (CII) today expressed its shock and disappointment at the disclosures made by B. Ramalinga Raju on the financial position and financial statements of Satyam Computer Services.
CII believes there is a need to immediately examine the loopholes in regulation, accounting, audit and governance that allowed such lapses to occur and address them with urgency.
While the occurrence of such events in a major company is a matter of deep regret, CII believes it would be inappropriate for this to be the basis of questioning of general governance standards in other companies.
Corporate India must however reflect on ways to demonstrate its quality of governance and enhance the confidence of stakeholders.
Hitesh Agrawal, head research, Angel Broking
It is one of the worst days for Indian investors as a truly shocking and mind-numbing development transpired in the Indian corporate and stockmarket history.
This has shaken the confidence of investors – both domestic and global – the repercussions of which could be felt over the medium-term.
While Indian corporate governance standards have been put at stake here, the role of the auditors have also come under serious question.
However, the biggest dent that this Satyam episode could create is that in the ‘trust’ factor of investors towards companies, the auditors, the reported numbers by companies, etc., which is an element that cannot be written in black and white but is a practice that has to be diligently followed.
Hopefully, this development will now lead to greater weightage being provided to corporate governance standards by companies and investors alike.
As far as our view on Satyam Computers is concerned, we have ‘discontinued coverage’ on the stock with immediate effect and would advise current investors to EXIT the stock and nonexistent investors to stay away.
Amar Ambani, Vice President Research, India Infoline
The revelation about Satyam Computers in the letter from B. Ramalinga Raju can only be described as ‘shocking’.
This is 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 sentiment 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.
If all or part of the declaration on figures mentioned in the letter is true, all people and firms associated with Satyam’s books of accounts should be brought under the scanner and legal action should be taken.
This raises serious doubts about the involvement of auditors and independent directors in the workings of a company.
We are deeply concerned and regret the plight of innocent shareholders and employees of the company.
Our last call on Satyam was a SELL in our report dated 26 December 2008. We drop coverage on the stock with immediate effect.