“The financial crisis has brought a dark day to India,” said Una Galani on Breakingviews. Ramalinga Raju, the chairman and founder of software services giant Satyam, has admitted to fiddling the firm’s accounts, after margin calls against falling shares unravelled his fraud. “After years of vastly inflating profits, it turns out that Satyam isn’t a rapid-growth bellwether of India’s flagship industry. The reality is shocking.” An operating margin of 24% has turned out to be just 3%, while the $1.1bn in net cash on its balance sheet is just $78m.
Reputations at risk
The revelations have rocked the Indian markets, with the Sensex benchmark dropping 7.3% on the day the news broke. Satyam is high profile and highly-respected: the country’s fourth-largest IT outsourcer and listed in both Mumbai and New York. Analysts are terming the affair “India’s own Enron”, while comparisons are being drawn between Raja and alleged US fraudster Bernie Madoff, said the Times of India. Much of the fear revolves around how this will affect global perceptions of Indian firms. “[Outsourcing firms] rely on their spotless reputation to persuade foreign Fortune 500 clients to them with their confidential data and systems,” said Joe Leahy in the FT. That could now be at risk. More broadly, this will “further erode faith in whole Indian model of capitalism”, which is dominated by family-run groups like Satyam, many of which have already had a tough year, said Galani.