Satyam Shakeout - Barron's

With all the turmoil in world markets, many investors expected a few small Asian corporations to wipe out but few were ready for a Satyam (SAY) crash. Family-run and supposedly solid, writes Barron's, Satyam has been reduced to 'India's Enron.'

Satyam once counted giants General Electric (GE) and Nestle (OTCPK:NSRGY) among its clients, but those days are rapidly drawing to a close. After founder and chairman Ramalinga Raju tendered his resignation with the announcement that over $1B - or a whopping 94% - of its reported cash reserves were fictitious, shares plummeted. Raju said he and his brothers had been cooking the books for years. Some analysts had been suspicious about Satyam's figures, but ignored their doubts during the heady bull years of 2004-2007.

Any investigation will focus on Satyam's independent directors, its banking partners and its chief auditor, PricewaterhouseCoopers. Undoubtedly, India's regulators, including the Securities and Exchange Board of India, will be drawn into the mess as well.

Big Indian IT firms and foreign outsourcing majors like Accenture (ACN) and Cognizant (CTSH) could gain clients fleeing Satyam, but they also have to face unnerved investors whose faith has been shaken.

Suresh Senapathy, the CFO at Satyam rival Wipro (WIT), expressed his shock that auditors hadn't uncovered a fraud of this proportion and tried to stress that Satyam is an 'isolated case.' Investors are less sure, however, and are bracing for more bad news. "This was a systemic fundamental failure," said Ram Kolluri, chief investment officer at ICICI Group's private wealth-management division. "In my nightmare moment, I would start to worry how many Satyams there are around in the market."