The Satyam saga

Satyam’s story is taking interesting turns of late now. And the repurcussions are going a bit beyond what I used to think as possible earlier. My earlier notions have been that the stock market and the share prices at best have a secondary effect on the parent company and companies are run based on what they bring home and not by the tribulations of the market. But this issue has made me reconsider my notions. Let me put it down in points:

• Satyam as a company has got its shares listed in the stock exchange and are driven by the general mood of stock market. Normal and boring.
• Then Mr. Raju decides to use some of Satyam’s cash pile to bail out his son’s companies and this has got the investor community up in arms. They start dumping shares en masse and this leads to a massive fall in the share price.
• So far, this is only a market issue with some repurcussions to the promotors but not the company as an entity. But then this changes. As it transpires, some of the promoter’s shares have been pledged to some institutions in exchange for cash and they have done the same further. The loss of share value means that the collateral is lesser in value than the loan. This forces the holder to start selling the shares to avoid any further loss.
• This changes the game completely, as the promoters might now have gone in minority and are liable to be ousted from the company. The company is now getting seriously affected.
• What happens next is to be seen closely……

Personally, it now looks out to be a long drawn out affair. I was hoping for a bonanza announcement this board meeting but the resignation of its directors has meant that such decisions will not be smoothly taken. Anyway, i still reiterate this stock to be a great buy at every fall. There are good short term rewards at the very least here.