Satyam Computers: 7,000 crore fraud

Satyam Computers Chairman Ramalinga Raju resigned from Satyam Board and accepted huge fraud in Satyam Books. This is the biggest scam in the history of corporate India. Andhra Pradesh Government already ordered for CBCID enquiry and many deals of Maytas will be reviewed. Q3 results by Corporate India will also come under scanner. Ram Mynampati will act as interim CEO of Satyam Computers.

Satyam ADR lost 99.89% of value in NASDAQ. Satyam was replaced by Reliance Capital in the Nifty. BSE removed Satyam Computers from Sensex and replaced it with Sun Pharma. Many Companies are reviewing Satyam contracts on daily basis. Vianale (Satyam ADR holder) already filed a lawsuit in USA.

Many FIIs and Mutual funds along with Companies like L&T lost crores of money in Satyam stock. It is difficult to estimate how investors will react when all these news will come out with exact amount of losses. No one expected this magnitude of fraud in Satyam Computers books.

Ramalinga Raju is our new "Harshad Mehta." What happened to our famed financial journalists?

Request to readers: We need more whistle blowers in India. If you are a whistle blower and know some thing about your management acts or have access to inside information, just send your information to me (dr.nvkrishna@gmail.com), I will publish the fraud in the blog without your details.

Many experts are thinking that total scam will be around Rs 7,000 crore. They inflated bank balance and cash reserves for so many years. Satyam management will conduct press meet in the next 24 hours. What will they say? Board meet will be held on January 10th. Ramalinga Raju is an icon for our generation especially in Andhra Pradesh.

Request to SEBI: Promoters and Investment bankers should announce to stock exchanges when any insider pledges shares to take loans within 24 hours. All the promoters and other insiders should come out with full details of their already pledged shares immediately to whom they pledged and at what price. SEBI and the exchanges should made this rule a mandatory one for any Company to list in the Stock Exchanges. We need more transparency and Corporate governance.

Company reported operating margin of Rs 640 crore against Rs 64 crore. Raju himself said that we committed this fraud to save us from the scam in Satyam books which was done over many years. He and his sons took unnecessary risks in Real Estate and Construction. They recently grabbed all the major construction projects in Andhra Pradesh. Even Andhra pradesh Chief Minister publicly came out in support of Maytas Infra just 3 days back. Why?

Read this excellent article by Economic Times on the involvement of politicians in the Satyam Scam.

Read this excellent article by Business Standard on how Mutual Funds lost crores of money due to Satyam Scam.

Read this good article by Mint on Satyam fraud.

Times of India article on Satyam and Andhra Government:

If this news will come out Stock Markets will collapse and investors will lose faith in Stocks. Mutual Funds might have made huge money if some one might have acquired Satyam Computers. But Ramalinga Raju spoiled all their plans.

Mutual funds that might have lost huge money in Satyam Computers:

1. Sundaram BNP Paribas.

2. ICICI Mutual fund.

3. HDFC Mutual Fund

4. Tata Mutual Fund

5. Franklin Templeton Mutual Fund

6. We need more clarity on the issue and the amount of losses by other Mutual funds.

Satyam Stock price:

Satyam Stock lost 77% of value and is ended the day at 40. 14 crore shares were traded in the BSE Sensex while 33 crore shares were traded in the Nifty. Satyam stock is now trading at a P/E of 1.5. IL and FS trust sold the pledged shares (by management) and promoters now hold just 1.3% stake in the Company.

Satyam ADR in NASDAQ: It was ended at 0.01 (lost 99.89% of value) in NASDAQ on Wednesday. It may touch zero levels in both Sensex and Nifty on Friday. Who will buy it? Can Government save investors and employees?

Source: Google Finance.


3. LIC has around 5% stake and sold just 40,000 shares. LIC may lose more than Rs 1,500 crore in Satyam Computers (estimates). I don't know at what price LIC bought Satyam Computers. Even a lay man knew IT is a bad sector even for next 2 years. I don't know LIC rationale to have such a large stake in an IT company even before this scam.

Who are managing LIC investments in Stock Markets? They does not even known basic ethics and rules about stock markets.

Basic unwritten rule in stock markets:

Never hold even a single stock when a fraud was broken out in a Company. Exit immediately even with big losses. That's why Swiss Finance exited from Satyam with Rs 500 crore losses. That's why Aberdeen Investments exited with more than Rs 1,000 crore losses (estimates).

 4. AP Government will probe about Maytas financial position and Satyam fraud and may cancel all its contracts. This is the Government which allotted land to Satyam at Rs 1 lakh per acre in Vizag (market price is Rs 1 crore per acre). This is the Government which allotted Hyderabad Metro project to Maytas despite objections by experts like Sridharan of Delhi Metro. Sridharan shouted about big "Real Estate scam" at that time but A.P Government successfully silenced him with the help of Central Government.


5. Ramalinga Raju is now in Texas and may be arrested after his return from USA. But some sources are saying that he is still in Hyderabad and has in touch with his community leaders and politicians (Times of India).

BSE Sensex lost 750 points (7.2%) in just 3 hours after the Satyam fraud news was broke out. Nifty lost 6% of value and ended the day at 2920. Infosys, BEL and HUL are some major stocks that ended in the green. Real Estate and IT stocks suffer major losses. BSE IT index lost 9% of value. Many real estate stocks lost 15-18% of values.

Chart courtesy: Guruji.

What is worrying is the fact that Government and NASSCOM are still trying to fool us by stating this as an isolated incident in stead of cleaning the system.

Read Ramalinga Raju letter to Satyam Board:

Satyam Raju Letter

Publish at Scribd or explore others: Stocks Business satyam scam indian stocks

Read Ramalinga Raju letter at Google documents.

Special thanks to Arun Verghese for sending me this letter.

Confidence is dented and trust is broken. Retail investors just account for 2% of Stock market investments. It is difficult for stock markets to attract new customers. Raju will face charges in USA as Satyam stock is also listed in the NASDAQ.

Do you know that Satyam's Internal Audit team has joined the elite list of companies across the world to have received "Recognition of Commitment Award (ROC)" from "The Institute of Internal Auditors, USA (IIA)". Satyam also received corporate Governance award in 2008. Who will believe these awards in future?

Read the audit report of Satyam Computers in March, 2008. Price Waterhouse are the Chartered Accountants.

This news will have huge implications. Foreign regulators will take serious action and the Ramalinga Raju family will be in serious trouble.

This is my article on Satyam Computers when Maytas news was broke out.

My advice: 15 stocks that may shock investors.

SEBI should do enquiry on these stocks also. If SEBI did enquiry, we will find many companies like Satyam.

Huge implication on FDI, Indian Stock Markets, Out sourcing. What will happen to 50,000 employees of Satyam Computers? Will the foreign companies continue to outsource to Satyam?

How they did it over such a long time? If a scam of this magnitude can happen in such a major company, what about small and mid caps. Unimaginable!

We need complete overhaul of system, accounting standards and company books to keep the confidence of investors on Stock Markets.

Current fall in stock markets may be triggered by Satyam fiasco. But this is an inevitable fall. Recent stock market rally is triggered by brokers by giving positive statements in a systematic way to lure innocent investors. Simple question to analysts. Everyone knew that economy deteriorated to unimaginable levels. Then why stock markets are rising?

Investors should believe in their research and gut feeling but not in broker's advice. Why any broker will tell you to stay away from stock markets and spoil his business?

Sensex at 10,200 on January 6th, 2009 = Sensex at 21,000 on January 12th, 2008. But there is no difference in the downside left.

Where is the positive news that will give boosting and confidence to the companies and investors But stock markets sometimes behave in strange ways over short term. Fundamentals will alone save you.

I don't believe in: I am once again saying that I don't believe in those resistances and supports. I don't believe in trading. I don't know why any one buy derivatives. You will lose your lifetime earnings in a few days in stocks.

I believe in: Fundamentals of the company, Fundamentals of the business and fundamentals of the economy. Fundamentals will alone save you. Stock markets may move above or below the fundamentals over short term but finally come to real price.

Every stock has some price according to the fundamentals. That price will change according to the changing economic landscape and future prospects.

Examples.

1. Larsen and Toubro is a good company. It commanded a valuation of 30-40 in the bull market. But it is now struggling to command a premium of 15-20. Why? This is not due to the Company but due to weak economic land scape.

2. Price is important but not others. ICICI Bank is the worst stock to buy at 500 but good buy at 300. Same stock but different advice due to price. Price at which you are entering is crucial.

3. Reliance Industries: This is a bad stock to buy when crude is around Rs 30. But good short term investment when Israel attacked Palestina. Only short term.

4. Timing: I am repeatedly saying that investing in a good company is not enough. Every stock will fall when panic sets in. Value is very important. Only mad investors and speculators will buy stocks at above 10,000 Sensex levels.

5. One investor asked me this question: "You wrote that Sensex will fall and Don't buy stocks. But stocks are rising and rising. Can I buy?". What can I say? Stock Markets sometimes move in opposite direction to the fundamentals because of "big guys" who still have major say in the market movements. We should not change our decision because of stock movements. We should always stick to our price.

Never do trading. Your earnings will be wiped out in a few sessions. Always believe in investing. Those days of buy and forget have gone. These are the dynamic days. Things are now changing in a few days.

Derivatives are prepared by intelligent brokers for the benefit of the brokers. Why are you helping them by doing trading? There is a big difference between short term investment and trading.

I know many investors who bought Satyam at Rs 120-130 but are still holding them at 180. They now lost all the profits. This greed will spoil good returns. When you get good returns over short term, exit it without thinking about upside.


Never understimate stock markets and underlying fundamentals of the company and business. Never become greedy. We don't know the complete fraud details in Satyam books. In the upcoming results season, everyone will keep a hawk's eye on the Companies and managements.

Worst statement: This is an isolated incident - Kamal Nath, Indian Commerce minister. Instead of cleaning the system, they want to bury the truth. 

I repeatedly wrote in the blog that we will hear more such news in the coming days. It is good if CLSA gives more clarity on this research article on 15 Indian Companies. SEBI failed to take significant action on JP Associates and SRF after their recent decisions. Just see what Hiranadani did!

Government should take quick measures to revive the trust in the system. Otherwise effects of the Raju's fraud will be longer and severe.


Many largest stake holders exited from Satyam today but LIC is still positive on the company (On TV). Many investors are buying ULIPs from LIC. That is life.


Quote: Satyam is India's Enron and Raju is India's Madoff.

Request to Copycats: Please at least mention the source of the article.


Just see. How economy took the life of World 92nd richest man . No one will be spared. Read this article to know about his sentiment in death.

Must read articles:

1. This news will have huge implications on Economy and Stock Markets.

2. Zero growth in China in 2009. I am unable to believe it.

3. 35% drop in U.S equity underwriting - Brad Hintz.


Recession news:


1. 6,93,000 jobs lost in December in USA - ADP Employer Services’ report. Shocking number!

2. Google will lay off temporary workers. Lenovo will lay off 11% of work force.

3. Intel announced disappointing results.

4. Satyam fraud will have huge implications on Indian Stock markets.

5. There is already liquidity problem in the markets. This incident will have huge impact on FIIs who have 20% stake in the Indian Companies. Satyam wounds will take some time to heal. In Andhra pradesh, Satyam is an icon for our generation. It is very difficult to convince them about stock market investments. Harshad Mehta scam left a huge impact on my father's generation. Traditionally, Indians are averse about Stock Markets.

6. Temasek lost $2 billion in Merrill Lynch.

7. Aberdeen might have lost more than more than 1,000 crore in Satyam Computers.

8. View this Medscape poll to know about how recession is even affecting healthcare industry.


Image courtesy: Guruji and NASDAQ.


My comment: If an investor bought Satyam stock today means he is either a speculator or a trader. Never do any of such activities in stock markets. Take an oath. Both will spoil your life. Stock markets are investment vehicles but not gambling centers. Always invest in stocks. Never speculate. There are enough opportunities for investors in stocks. Concentrate on research and fundamentals but not on speculation.


Big lesson: Stock markets are the most dynamic investment vehicles. Your yearly earnings will be wiped out in few hours. 50% hourly gains/losses occur only in stock markets. Buy and forget will not work in these days.


When an experienced investor from Pune called me 4 months back and said about many bad things about Indian promoters. I argumented with him at that time. His words are right.


Don't be fooled by Raju's letter. There are so many interwoven scams in the Satyam saga. Even some state Governments might have been involved in this scam, according to Telugu TV channels. That's why truth may never come out in this scam. After some hectic activity, truth will be buried under carpet by politicians.

Do you know? Harshad Mehta assets were auctioned after 16 years.

When will Government recover huge land bank of Raju family and auction it and return the money to Satyam's investors. They are rumoured to have 10,000 acres of land bank. So, Satyam family is safe but investors are real losers.

Latest rumor: Ramalinga Raju wrote in the letter about "voluntary hiking of cash reserves and operating profits by cooking books". But rumor is they diverted the cash to real estate and construction projects. They thought that by going to "Maytas Properties IPO", they will collect huge money from investors and pay the debts. But the collapse of Real Estate market spoiled all the family's "Big" plans. So many big families in Andhra pradesh may bankrupt after Satyam saga.

Only hope: Nothing come out of Satyam management meeting. They have not even given guarantee to pay salarees to employees. But this scam involves Andhra Pradesh politicians. Will these big politicians will save us? We have to see how things will pan out.

We have to see what will happen to other Hyderabad based Companies like Nagarjuna Constructions (Nagarjuna Raju), Lanco Infra (Congress M.P) and GMR Infra and how investors will treat these Companies.