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Investors the only losers in the Satyam saga

Those who held the Satyam stock on the day of the letter saw large chunks of their value being wiped out

The Satyam saga has reached a milestone of sorts. Last week, the company posted its revised numbers for the year ending 2009 and 2010. According to its statements, the new management now thinks that in 2009, the company lost Rs 8,176 crore on revenues of Rs 8,812 crore. Of course, such a statement is misleading, in the sense that the revenues had nothing to do with the losses. Practically speaking, it’s not as if the company spent Rs 16,988 crore in an effort to generate revenues of Rs 8,812 crore.

The Satyam affair has come to some sort of a conclusion, with the Mahindra Satyam management more or less concluding its forensic work on the accounts on the one hand and , the disgraced founder of Satyam Computers, more or less getting away with whatever he had done. In some sense, what has happened to Satyam after Raju’s confession in January 2009 is an achievement. A business that had started to look doomed at that point has managed to survive. Helped, no doubt, by the general recovery around the world, Satyam has managed not to turn out as a complete disaster for its employees and customers.

However, that’s about the future of the business. It is clear that Satyam’s pre-confession past will never reach any kind of closure. The new management has released details about the total impact of Raju’s scam, totalling around Rs 7,800 crore. This isn’t too much out of line with what Raju himself had revealed in his fateful letter. The new management has also said that it couldn’t do some of the forensic work it should have done because it doesn’t have access to the computers of Raju brothers’ and their auditors’. Presumably, these computers are in the protection of the investigation agencies.

For India’s equity investors, the Satyam affair provides no closure at all. At the end of the day, investors are the ones who’ve been left holding the baby.

The employees kept their jobs — in fact the government went to considerable lengths to ensure that. The customers are fine since the company kept operating and indeed, has been reported to have sweetened the deal for many of them. The is fine because the risk they took has paid off and they’ve leapfrogged to a much larger presence in the IT services businesses. The Rajus are certainly fine, as everyone knows.

Ordinary equity investors, however, are decidedly not fine. Those who held the Satyam stock on the day of the letter saw large chunks of their value being wiped out. But those who never held the stock have also done badly. They now know that crooked promoters can get away with truly breathtaking level of crookedness, even in major large-cap stocks. By now, cynics would have won all the bets they laid on January 7, 2009, and that means they’re fine, too.

This article first appeared in The Economic Times on October 4, 2010