Indian equity markets witnessed bloodbath after an outrageous revelation that Satyam Computers founder and chairman B Ramalinga Raju had committed an accounting fraud and had resigned from the Satyam board. This sent the share price of the company in a downward tizzy which speeded 77% down in a day and along with it took several IT stocks. It and also dented the positive sentiment that was built over the last few days getting the BSE Sensex fell 7.25% and the Nifty by 6.18%, the largest fall in the past two months.
Equity analysts across the board had literally printed ?suspended? over their recommendations that were sent out. Mutual funds who had held on thinking there would be a revival resorted to wide spread selling. The lucky ones like Reliance Mutual Fund and BNP Paribas looked savvy as they had emptied their holdings in 2008. Overall, the sentiment has turned gloomy and the fear factor seems to have set in again, just before a dismal earnings season is about to unfold. The India VIX or volatility index, which was below the 40% mark after several months, shot up to 44.36% levels, indicating that expectations of high volatility had increased.
Speaking on the impact of the incident on the overseas investor sentiment, Sudip Bandyopdhyay, director & CEO of Reliance Money, said, ?I don?t think that this incident will deter the foreign institutional investors (FII) to invest in Indian IT companies and we will witness recovery in the coming days.? Little wonder then that foreign institutional investors were net purchasers of around Rs 444 crore, the highest in the year so far.
Sukumar Rajah, CIO – Equity, Franklin Templeton Investments, India thinks that the impact will be limited and that the markets would come out stronger, ?This unfortunate development will be a short term negative for market sentiment. However, further tightening of regulations and oversight mechanism for auditors emanating out of this incident should be a long term positive for India.?
However there are others who are not so sanguine. Waqar Naqvi, chief executive officer, Tauras Asset Management that any effect on the equity market will have an equal effect on the equity linked Mutual Funds (MF) schemes. Now, the retail investors will have a `wait and watch? policy.
A top official of a foreign fund house said that the ongoing investigation and the other issues that follow this incident will be closely monitored. At the moment, FIIs have taken an opportunistic stance cashing on the panic, but for long-term investors this is indeed a crucial moment. Several market participants will now sit back on their investment decisions, he said.
Devesh Kumar, MD of Centrum Broking said, ?I don?t think that markets are likely to recover in the coming days and there are strong chances of markets going further down from this point in the coming days.? Meanwhile, National Stock Exchange has removed Satyam Computer Services from its main Nifty index and also the futures segment. The Bombay Stock Exchange will also be taking stock of the situation before taking appropriate action, said the spokesperson.
