In one of the worst days for Indian corporate and stock market history, the benchmark index plunged 749 points, rocked by revelations of Rs 7,000 crore fraud at Satyam.
The chairman of India's Satyam Computer Services, B. Ramalinga Raju, on Wednesday admitted that the company's profits had been inflated for several years, sending shares of the software services provider plunging by more than 77 per cent to Rs 40.
The Sensex ended at 9,586 while Nifty shed 192 points to close at 2,920.
The damage to the investor sentiment from the Satyam revelations can be long-lasting if authorities don’t take quick action, said UK Sinha, CEO of UTI AMC.
The Satyam revelations have shaken the confidence of investors—both domestic and global—the repercussions of which could be felt over the medium-term, said Hitesh Agrawal, head of research at Angel Broking, said.
“While Indian corporate governance standards have been put at stake here, the role of the auditors has also come under serious question. However, the biggest dent that this Satyam episode could create is that in the ‘trust’ factor of investors towards companies, auditors, reported numbers by companies,” he added.
The selling pressure after hit all the sectors, with realty, oil & gas and IT stocks among the worst affected. The BSE realty index plunged 16 per cent, with HDIL and Unitech losing over 20 per cent. Among the oil & gas stocks, Sensex heavyweight plunged 12 per cent. The Satyam shock also hit the IT stocks hard. HCL, NIIT, and Aptech lost 15 per cent to 24 per cent. However, Wipro and Infosys gained as investors bet that Satyam’s loss could be their gains.
Apart from Satyam, other major losers among the Sensex pack included Rel Infra, DLF, RCom and JP Associates. Rel Infra lost 13.5 per cent, DLF fell 15 per cent, RCom skidded 17 per cent while JP Associates lost close to 30 per cent.
Elsewhere, other major Asian markets were mixed on Wednesday. While Hong Kong’s Hang Seng sank 3.4 per cent, markets in Japan, South Korea and Australia extended their New Year's rally on hopes that stimulus measures from a new US administration would help speed the world's economic recovery.
Since falling to multiyear lows in November, global equities have advanced strongly, with a number of major benchmarks rising more than 10 percent to year-end. In recent days, buying sentiment has been supported by U.S. President-elect Barack Obama's economy-boosting proposals, which could cost as much as $775 billion. Obama said Tuesday the U.S. could face trillion-dollar deficits for years to come as it moves ahead with its massive stimulus spending.
But with company earnings expected to be dire in the coming months, the "Obama effect" could be short-lived, said Peter Lai, investment manager at DBS Vickers in Hong Kong.
"After the honeymoon period of Obama wears off, people will realize the cruel reality of the economic slowdown and the credit crisis," Lai said.
As trading opened in Europe, Britain's FTSE 100 lost 1.5 percent, Germany's DAX shed 0.9 percent and France's CAC-40 was off 0.6 percent.
Overnight in New York, Wall Street again brushed off more dismal readings about the U.S. economy. The Dow Jones industrial average gained 62.21, or 0.7 percent, to 9,015.10.