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Satyam episode may threaten FDI in India: Foreign media

January 08, 2009 13:00 IST
Last Updated: January 08, 2009 13:30 IST

The massive fraud at software services firm Satyam [Get Quote] Computer faced brick bats in the foreign media with some saying that this episode could threaten investment from abroad in the country and is likely to cast a cloud over growth in its outsourcing sector.

"The scandal threatened to gobble up not just Raju, who resigned, but his company, Satyam Computer Services. Far beyond Satyam, it raised fears that similar problems might lurk in other Indian companies, particularly in its vaunted outsourcing industry," American daily the New York Times said.

In what could be termed as the biggest corporate fraud, Satyam on Wednesday made a shocking disclosure of accounts fudging by its founder Ramalinga Raju, who then quit as chairman, leaving an uncertain future for the company and its 53,000 employees.

Raju, in a statement on Wednesday, said that Satyam's profits had been massively inflated over recent years but no other board member was aware of the financial irregularities.

Quoting Jacob Rees-Mogg, the lead manager with Somerset capital management, a fund that specialises in emerging markets, NYT said, "[T]he fraud will make people even more nervous about investing in India and other developing markets".

Meanwhile, the Wall Street Journal said, "[T]he chairman of one of India's largest technology companies said he concocted key financial results, . . . sending shock waves across India and likely prompting investors to question other corporate results as the once-hot economy slows".

British daily the Financial Times said: "Its (Satyam) disclosure will ring alarm bells for hundreds of Fortune 500 companies across the world that entrust their most critical data and computer systems to Indian outsourcing companies and threatens to damage the countrys reputation as a place to do business."

Satyams' clients ranged from Unilever and Nestle [Get Quote] to Cisco, GE, Sony and, until recently, the World Bank.

NYT further said, "Some of India's biggest conglomerates started out as family-run companies, and analysts fear the taint of corruption from Satyam's poor governance, lax accounting controls and a lack of transparency could sully any of those big companies for investors and customers."

Meanwhile, India's corporate affairs ministry and Securities and Exchange Board of India announced that the episode would be probed into and action taken against the perpetrators of the fraud that entails inflating profits and creating fictitious assets.

The government said the entire issue would be referred to the Serious Fraud Investigation Office.

Market analysts said the revelations could lead to a major shake-up in India's outsourcing industry as the disclosure made by Satyam could lead to the firm shutting down or even sold off.

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