MUMBAI: The BSE Sensex fell nearly 2 percent to its lowest close in a month on Friday as investors took fright the country's worst corporate scandal could turn foreigners away over the near term.
Shares in Satyam Computer Services ended down 40 percent after a holiday, following an almost 80 percent plunge on Wednesday when the chairman of the outsourcer said it had falsely inflated profits for many years.
Traders said the scandal unnerved investors.
"People are now cautious about what is right and what is wrong in companies' accounts. One has to be careful," said Gajendra Nagpal, chief executive of Unicon Financial.
Shares in Larsen & Toubro Ltd fell as much as 14.8 percent after the engineering and construction firm's chairman said it had bought a 3.95 percent holding in Satyam earlier this month and had no plan to sell or buy more.
The company, which has a small outsourcing unit, had made the
investment in the hope of forming a strategic alliance, he said. By close the stock pared losses to 7.15 percent at 720.10 rupees.
Satyam plunged as much as 71.2 percent to 11.50 rupees, its lowest in 11 years, before closing at 23.85 rupees on heavy volume of 82 million shares -- 19 percent of the market's total of 433 million traded.
Its rivals Tata Consultancy Services, Infosys Technologies and Wipro climbed as investors speculated they would get more business.
"Other IT companies could gain Satyam's clients and also they are better governed, which is why Satyam's loss has been their gain in terms of stock prices too," said Harit Shah, a research analyst at Angel Broking.
Infosys, which reports quarterly earnings on Tuesday, rose 0.7 percent to 1,195.10 rupees, Tata Consultancy gained 6.3 percent to 535.65 rupees and Wipro was up 3.0 percent at 250.65 rupees.
The 30-share BSE index closed down 1.88 percent, or 180.41 points, at 9,406.47. It had briefly turned positive after starting lower but then dropped as much as 3.5 percent before pulling back.
Traders said a lower-than-expected inflation rate, which fell below 6 percent in late December to its lowest since February last year, helped the market pare losses.
Still, for the week the index lost 5.5 percent, its third fall in six weeks.
Nineteen of the index components fell, while in the broader market losers swamped gainers in the ratio of 3.3:1.
Traders said there were concerns the Satyam scandal could hit foreign investment in the near term. Foreign funds had bought a net $241 million of shares in the first four trading sessions of the new year after withdrawing more than $13 billion in 2008.
"There are short-term implications." said Anish Marfatia, vice-president at Avendus Capital. "In the long run, investments in India will pick up."
Analysts at foreign securities firms said such scandals were not unique to the country and long-term prospects were good.
"It's a company-specific problem. You will find accounting irregularities anywhere in the world. It's a buying opportunity for India after it has been sold down," Adrian Mowat, JPMorgan's emerging market and Asia equity strategist, said in Hong Kong.
"It's a scandal, (but) it doesn't change the growth prospects of India. Let's face it, we've seen a lot of accounting scandals in the U.S."
The 50-share NSE index closed down 1.6 percent at 2,873.
STOCKS THAT MOVED
* Axis Bank fell 7 percent to 485.75 rupees after the bank said its gross non-performing assets jumped 76 percent to 7.88 billion rupees in the December quarter.
* Religare Enterprises Ltd rose 1.2 percent to 329 rupees, after the financial services firm approved making a bid to buy IDBI Home Finance Ltd.
MAIN TOP 3 BY VOLUME
* Satyam Computer on 82 million shares
* Unitech on 45.3 million shares
* Jaiprakash Associates on 26.4 million shares
