State of the Estates

“I can calculate the motions of the heavenly bodies, but not the madness of people.”

These words Are of Sir Isaac Newton, on losing out his money in the stock market. And this statement holds truth to this day.

When Ramalinga Raju, the erstwhile CEO of Satyam Computer Services Limited, confessed his frauds and announced his resignation, everyone expected the entire IT sector to be at receiving end of the investors' wrath. Since Satyam was the fourth largest Indian IT company which had won International recognition for corporate governance; its downfall to have an effect on the IT industry was a foregone conclusion. But no one quite expected the 'Satyam Effect' to spread its wings over other sectors as well. The Satyam crisis raised Corporate Governance issues and with it the share market collapsed. On the day of Raju's confessions, the Sensex - 30 companies that represent the broad BSE - slid by seven per cent. All the sectoral indices followed suit but the worst hit turned out to be the realty index. On that day, BSE Realty fell by a whopping 17 per cent! As if Mr. Raju was the CEO of all these companies.

Maytas Infra Ltd., the only real estate company related to Raju, fell by a relatively marginal five per cent. But some of its competitors were not so lucky. Among those which are part of the realty index, Housing Development & Infrastructure, India Bulls Real Estate and Unitech saw the biggest decline of 21 per cent each. While these three companies have managed to cling onto that level, Jai Prakash Associates fell by 29 per cent on the day of the news and since then, has gone down by a further seven per cent. With the exception of Akruti City and Peninsula Land, every company on the realty index fell by over 20 per cent during the week. In the mayhem, Akruti City lost a nominal five per cent and Peninsula Land dropped by seven per cent; which was in line with the Sensex.

While the fate of IT and realty companies can be understood, there were companies that were not associated with either of these sectors that got hammered as well. One such company is Suzlon Energy Limited, which lost 20 per cent when the news of the scam came out. And over the course of the week, it lost out by 25 per cent. Similar was the case of ANG Auto, an auto ancillary company that saw a fall of 20 per cent on the day of the announcement. And between 6th and 16th January, its stock price got reduced by 41 per cent.

Tanla Solutions is another company whose share prices seem to have taken a nose dive. On the day of the confession episode, the company's share price fell by over 20 per cent and by 52 per cent over the next few days. Tanla Solutions deals in mobile infrastructure and end-to-end mobile solutions. Maybe the company had to face the ire of investors for being associated with sectors like infrastructure and ITES (Information Technology Enabled Services.)

Satyam’s Ripple Effect    Closing Price-2009 (Rs)            Change* Company Name    06-Jan    07-Jan    21-Jan    (%) ANG Auto   55.55   44.45   32.65   -20% Aptech   102.8   77.55   71   -25% Housing Develop. & Infra   140.3   110.2   99.1   -21% IVRCL Infra & Projects   167.45   122   107.65   -27% Indiabulls Real Estate   149.05   117.2   102.25   -21% Jaiprakash Associates   100.85   71.45   65.15   -29% Lanco Infratech   168.85   126   111.05   -25% Nagarjuna Const Co.   91.4   71.4   54.05   -22% Satyam Comp Services   179.1   39.95   27.75   -78% Suzlon Energy   67.75   52.2   49.85   -23% Tanla Solutions   91.85   73.5   37.25   -20% Unitech   45.9   36.4   29.3   -21% * Change in Closing price from 6/1/2009 to 7/1/2009