Saturday, January 10, 2009

Satyam founder Mr. Raju arrested

Government took swift action yesterday with superseding Satyam Management and arresting Raju and his brother in the Satyam scandal - the biggest corporate scandal to hit India's corporate world. There were many rumors doing the round making the employees nervous and anxious. There was some news that the employees will not be given salaries for the next 2 months and around 10000 employees would be laid off. Experts have hailed government intervention. Today's board meeting stood cancelled and government would conduct the board meeting after identifying the new board members.

Meanwhile, Mr Raju and his brother were arrested yesterday night and would be grilled by cops and SEBI today. There were other rumors doing the rounds that they may have fled because of some political connections. Government rested all the rumours with some swift action yesterday. Hopefully the momentum will not die and the probe would be completed with such swift and coordinated action among various government agencies. This would give a sigh of relief and hope to many stakeholders, employees, clients and FIIs looking at investing in India. Look at the series of events that unfolded after Raju wrote a letter to the stakeholders.

What does a investor who has invested in Satyam stock do now? Is it better to get out at current levels? If you have invested at a high, getting back Rs 20 odd per share will not recover any losses now. It is best to stay put and watch the events unfolding in the next few days. The poor retail investor has taken the maximum brunt in this case as most of the institutional investors reacted very quickly when the news of scandal broke. Most of the retail investors were taken by surprise and would not have responded as swiftly. And it does not make sense to exit at this level. After Government's intervention there is still some hope left. Many experts feel that all is not lost for Satyam's investors as it has some real clients, good employee base and hopefully decent revenue stream. It may take some time for the company to recover, there may even be some takeover with some government help. L&T had bought 3.95% of Satyam's shares last month. Even L&T is not interested in buying Satyam now but is not interested in dumping the shares either as they believe in Satyam's businesses. Most of the companies are wary about Satyam because they do not know the depth of liabilities. Once that is clear with some independent Audit, there may be some companies who would be interested in Satyam or atleast part of their business.

Stock Market though reacted negatively yesterday with Sensex going down even after lower inflation numbers were announced. Satyam's shares touched an all time low of Rs 6.3 before settling at Rs 23 level. Ofcourse, expect turbulent times ahead for Satyam but there should be some respite with government stepping in.

Satyam Scandal - India's Enron

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