Satyam Profits Inflated

January 7, 2009 · Posted in General Economics 



Reuters writes India’s Satyam chief resigns, says profits inflated:

The chairman of India’s embattled Satyam Computer Services (Bombay:SATY.BO – News) resigned on Wednesday and said the company’s profits had been inflated over the last several years, sending the stock down 60 percent.

The shocking revelation comes after India’s fourth-largest outsourcer’s botched attempt last month to buy two construction firms in which the company’s founders held stakes and key customer World Bank dropping its ties with the outsourcing company.

“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years,” Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.

Satyam’s woes make it one of India’s most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay’s main benchmark index (Bombay:^BSESN – News) falling 3.9 percent.

Satyam, which specializes in business software and back-office services for clients such as General Electric (NYSE:GE – News), and Nestle (VTX:NESN.VX – News), was due to hold a board meeting on January 10 to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.

“I think there is no future for this stock. This case for India is similar to what happened to Enron in the U.S.,” said Jigar Shah, senior vice-president at Kim Eng Securities.

“It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected.”

I would add to that that most likely many companies from all sorts of emerging markets will come under more scrutiny and investments there will be affected. This might give the recent technical dollar correction, which appeared to be over last week, yet another boost for a few more weeks.

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