Author: Aaron Chaze

INDIA


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Caught in a jam: Many of India’s key indicators are slumping

Following the revelation of accounting fraud by Satyam Computers, India’s fourth-largest IT services company, the stock recorded one of the worst drops in Indian stock market history for an index component. Investors lost $2.4 billion in market capitalization as the stock dropped by 90% on the Indian exchanges within just five trading days, and it was removed as a constituent of the 30-share BSE Sensitive Index (see Newsmaker, page 6). The stock has been suspended from trading on the New York Stock Exchange since January 7, 2009, the day the fraud was revealed.

Satyam’s travails seem to epitomize the current dour mood in corporate India. Consulting firm Dun & Bradstreet, for example, has projected a sharp decline in business confidence in India for 2009. According to a Dun & Bradstreet report, the main reason for the drop in confidence is reduced domestic demand and falling corporate profitability. The report also pointed out that demand is likely to deteriorate further during the January-March 2009 quarter. Dun & Bradstreet’s Business Optimism Index fell by 31% from the previous quarter, touching the lowest level since the index was introduced six years ago.

The decline in corporate confidence is reflected in the Indian IPO market. The sentiment in that market continues to weaken as nearly 40 firms postponed plans to tap the equity market. The backlog of capital issues has now risen to $15 billion, and Indian investment bankers suggest that the IPO market may revive only in the second half of 2009.

The state of the IPO market contrasts sharply with the level of interest from foreign institutions in India. During 2008, 454 new foreign institutional investors, or FIIs, registered with the Securities and Exchange Board of India (SEBI), the market regulator. During the last quarter of the year, which saw a major global meltdown, 100 new FIIs registered. This increase was despite the fact that the 30-share Sensex lost 53% of its value and, according to the SEBI, the cumulative market value of FII holdings declined by $190 billion (including the decline in the rupee) to $60 billion between January and October 2008.


Aaron Chaze