Lessons from the Satyam scam
Lessons from the Satyam scam
The signs of the Satyam scam should have come almost three weeks before when Ramalinga Raju proposed to buy a controlling stake in sister concern Maytas for around Rs 7,000 crore. When the institutional investors opposed vehemently, the company decided to go against it. Three weeks later on January 7, Raju confessed to 'cooking' Satyam's books.
Within the next few days, the share price crashed to almost Rs 10 causing losses of over Rs 5,000 crore to around 300,000 investors. In the past five years, a number of companies have been suspended or fallen into bad times with Pyramid Saimira, Deccan Chronicle and Kingfisher Airlines being some of the more prominent examples.
Usually, in such situations, individual investors get caught on the wrong side even if they have invested in such stocks through mutual funds. Sample this: When Satyam declared that they are withdrawing the proposal to buy the controlling stake in Maytas, many brokerages were quick to recommend a buy on the stock. So, if institutional investors can get it wrong, there is little retail investors can do.
The best they can do is to consistently keep an eye on their investments. Therefore Shriram Subramanian, founder and managing director of InGovern Research feels it is always better to exit a scrip at the first signs of trouble or if things are not seemingly well. Also, if things seem too good to be true, maybe they are.
Similarly, be on alert when institutional investors reduce their holding in a stock. Typically, institutional investors and promoters are the first to know if something good or bad is happening in a company. Hence, experts believe investors should be cautious when these two entities sell stake. For instance, promoters held 2.18% in Satyam Computers and FIIs held 44.82%, as on December 2008, according to Capitaline.
The other important aspect to keep an eye on is debt on a company's book and the percentage of promoter stake pledged. Take the examples of Kingfisher Airlines and Deccan Chronicle. The total debt on Kingfisher Airlines' book, as on September 2013, stood at Rs 9,139.64 crore. The promoters pledged 67.24% of their stake, as on September 2013. That is, 21.6% of total equity. Deccan Chronicle promoters pledged 99.78% of their stake or 32.59% of total equity.
Since April 1, 2013, the Kingfisher stock has fallen over 70% from Rs 14.8. Do not blindly trust an all-star board of directors. In most Indian companies – promoter-owned, MNCs, PSUs - the dominant shareholder drives the agenda and the board functions as a figurehead.
"Some 1,400 companies have been suspended so far leaving hundreds of investors in a lurch. And if one notices, one thing common across all these companies was that promoters had cut their holding sharply before the company was suspended,&" says Kishor Oswal of CNI Research.
Yes, some investors go for the contra call and may benefit like in the Satyam case. Those who have been invested since January 2009 have made over 800% as the stock went up from Rs 23.75 (on January 9, 2009) to Rs 215.94 (on January 3, 2014).
But these are exceptions. "The Satyam case worked out well as the government stepped. This isn't the role of the government and an investor shouldn't expect the government to rescue failing companies always,&" says Subramanian.
Source : Business Standard
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
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The signs of the Satyam scam should have come almost three weeks before when Ramalinga Raju proposed to buy a controlling stake in sister concern Maytas for around Rs 7,000 crore. When the institutional investors opposed vehemently, the company decided to go against it. Three weeks later on January 7, Raju confessed to 'cooking' Satyam's books.
Within the next few days, the share price crashed to almost Rs 10 causing losses of over Rs 5,000 crore to around 300,000 investors. In the past five years, a number of companies have been suspended or fallen into bad times with Pyramid Saimira, Deccan Chronicle and Kingfisher Airlines being some of the more prominent examples.
Usually, in such situations, individual investors get caught on the wrong side even if they have invested in such stocks through mutual funds. Sample this: When Satyam declared that they are withdrawing the proposal to buy the controlling stake in Maytas, many brokerages were quick to recommend a buy on the stock. So, if institutional investors can get it wrong, there is little retail investors can do.
The best they can do is to consistently keep an eye on their investments. Therefore Shriram Subramanian, founder and managing director of InGovern Research feels it is always better to exit a scrip at the first signs of trouble or if things are not seemingly well. Also, if things seem too good to be true, maybe they are.
Similarly, be on alert when institutional investors reduce their holding in a stock. Typically, institutional investors and promoters are the first to know if something good or bad is happening in a company. Hence, experts believe investors should be cautious when these two entities sell stake. For instance, promoters held 2.18% in Satyam Computers and FIIs held 44.82%, as on December 2008, according to Capitaline.
The other important aspect to keep an eye on is debt on a company's book and the percentage of promoter stake pledged. Take the examples of Kingfisher Airlines and Deccan Chronicle. The total debt on Kingfisher Airlines' book, as on September 2013, stood at Rs 9,139.64 crore. The promoters pledged 67.24% of their stake, as on September 2013. That is, 21.6% of total equity. Deccan Chronicle promoters pledged 99.78% of their stake or 32.59% of total equity.
Since April 1, 2013, the Kingfisher stock has fallen over 70% from Rs 14.8. Do not blindly trust an all-star board of directors. In most Indian companies – promoter-owned, MNCs, PSUs - the dominant shareholder drives the agenda and the board functions as a figurehead.
"Some 1,400 companies have been suspended so far leaving hundreds of investors in a lurch. And if one notices, one thing common across all these companies was that promoters had cut their holding sharply before the company was suspended,&" says Kishor Oswal of CNI Research.
Yes, some investors go for the contra call and may benefit like in the Satyam case. Those who have been invested since January 2009 have made over 800% as the stock went up from Rs 23.75 (on January 9, 2009) to Rs 215.94 (on January 3, 2014).
But these are exceptions. "The Satyam case worked out well as the government stepped. This isn't the role of the government and an investor shouldn't expect the government to rescue failing companies always,&" says Subramanian.
Source : Business Standard
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
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To unsubscribe from this group and stop receiving emails from it, send an email to Productupdatesforamc+unsubscribe@googlegroups.com.
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