Archives : SATYAM: 7,000 CR. ASATYA - 09/01/2009.
SATYAM: 7,000 Cr. Asatya – 09/01/2009.
The Indian stock market was shocked by possibly its biggest corporate fraud on Wednesday, as B.Ramalinga Raju, Chairman of Satyam, resigned after confessing that the companies profits and cash reserves has been cooked for several years. As a result, the Sensex registered a massive fall by 825 points from day high and the Satyam’s stock fell by almost 80% to Rs. 30 in intra-day. The Satyam crash was like a shock wave for the market and the ripple effect of the Satyam shock was felt across the entire market............
SATYAM: 7,000 Cr. Asatya – 09/01/2009.
The Indian stock market was shocked by possibly its biggest corporate fraud on Wednesday, as B.Ramalinga Raju, Chairman of Satyam, resigned after confessing that the companies profits and cash reserves has been cooked for several years. As a result, the Sensex registered a massive fall by 825 points from day high and the Satyam’s stock fell by almost 80% to Rs. 30 in intra-day. The Satyam crash was like a shock wave for the market and the ripple effect of the Satyam shock was felt across the entire market.
The confession of Mr. Raju that he had been cooking the companies account books to the tune of over 7000 crores will result in calculable and unjustifiable damage to Indian I.T. Industry and even corporate India. It was a shocking and a horrifying event which will cast a long shadow over Indian I.T. Industry and will raise disconcerting questions about corporate governance, the role of auditors and independent directors. As far as Satyam stock is concerned there was massive selling by the FII’s and the stock was almost down by 80%. The stock will perhaps move lower and lower as no potential investors or suitors will jump to buy the distressed company.
The timing of the revelation could not have been worse. The market was responding and positively moving up after the second stimulus package and RBI’s rate cuts were announced. This suicidal confession has crushed the small uptrend and pulled back the market into dark bearish mood.
Indian companies have enjoyed a higher valuation over most of their emerging market counterparts, because of the high corporate governance standards that India Inc. follows. The Indian companies enjoyed a higher P/E multiple as compared to Chinese companies, but because of this disgraceful revelation by Mr. Raju, this valuation gap will now evaporate and the high valuations assigned to the Indian companies due to high corporate governance will be a thing of the past.
Now the priority will be to save the image of India Inc.’s high corporate governance image by punishing the auditors along with the management of the company. In short, it should look more like an isolated case rather then a general phenomenon. To save the already tarnished and tattered image of India Inc. spare a thought for the companies shareholders and 53,000 workers.
SATYAM OPENS UP A PANDORA’s BOX:
The confessions of Mr. Raju will open a Pandora’s Box in the corporate world. The confessions are a result of a man who had no option left after manipulating the books of accounts for past several years in order to pop up profits.
Everyone wants to make profits and many try the short cut. Like Mr. Raju, there are many who jazz up the profitability of the company and attract potential suitors and investors to buy the shares of the company, which is fickle and hollow from inside. In order to increase their wealth, they don’t care about the dire consequences that company, its shareholders and its employees will face in the future.
The main culprit, no doubt, is the top management, but the role that the auditors play, cannot be discounted. For a fraud of such a magnitude and over such a period of time, the auditors need to be hand in glove with the top management. Hence if you ask me, the real culprits are the auditors who should be given the most stringent of punishments so that such a fraud never happens again.
This is the first of the many more such cases to come. The size and scales of the companies will differ, but the offence should not be neglected and be dealt with harshly. This will give a strong signal to the foreign investors that such offences will not be tolerated in Indian corporate world. The best resolution is to have a strict code of conduct for the auditors and raise the penalty bar in such a way that they shiver even by a thought of doing such a fraud.
Sensex opened the week at 10109, made a high of 10469, made a low of 9250, and closed the week at 9406, thus registering a weekly loss of 552 points.Sensex has formed a Dark Cloud Cover on the weekly charts. This is a Bearish formation, which will be negated only if the Sensex closes above 10409.All indicators like MACD, RSI and ROC have turned negative and are giving Sell Signal. The Demand line for the Sensex is at 9344, which is not broken on a closing basis, which is the only hope for the Sensex. The chances of the downward momentum will increase, if the Sensex manages a close below that demand line.The Sensex has some support in the zone of 9250-9162.
The Trendline Resistance is at 9538-9997 and Trendline Support is at 9344-8809.
For the week ahead the Resistance is at 9630-9838-9997-10469. Support is at 9250-9162-8814-8467.
Nifty opened the week at 3058, made a high of 3147, low of 2810, and closed the week at 2873. The weekly loss was 173 points.The indicators are suggesting bearishness. But the Nifty is comparatively stronger than the Sensex. The Nifty on Friday bounced from a low of 2810, which is the same as previous weeks low (2812). Thus the trend will turn negative if the Nifty is breaking and closing below 2810. If this happens, then the Nifty is likely to test the previous bottom, till then one can breathe with some respite.The Nifty has Trendline Line Resistance at 2928-3040. The Trendline Support is at 2718.
For the week ahead, the Resistance is at 2933-3046-3147. Support is at 2810-2716-2570.
LAST WEEK’S RECOMMEDATIONS:
Despite of the jitteriness of last week almost all our stocks went on to reach their targets with the exception of LIC HSG. CHAMBAL FERT. & WALCHAND NAGAR missed the target by just a rupee.
THIS WEEK’S RECOMMENDATIONS:
Buy Walchand Nagar 123 Tgt was 134 Reached 133
Buy Alstom Proj 263 Tgt was 273 Reached 284.
Buy L&T 825 Tgt was 858 Reached 870.
Buy LIC Hsg 245 Tgt was 258 Reached 252.
Buy LITL 166 Tgt was 174 Reached 178.
Buy REL 629 Tgt was 660 Reached 670.
Buy Chambal Fert 41 Tgt was 44 Reached 43.
This week will be a choppy week, hence we recommend using PAIR Strategy. Buy one and go short in other in futures. This will help in hedging one’s position and ride the volatility. Buy BPCL 380 SL 374 Tgt 389-400. Buy NTPC 178 SL 172 Tgt 184-190. Buy HPCL 267 SL 261 Tgt 275-284-289.
Buy IOC 434 SL 422 Tgt 442-450.