Mumbai - The market reacted with shock, Wednesday, after the promoters of beleaguered technology outsourcer Satyam Computer Services admitted to cooking up its books to the tune of $ 1 billion.

Chairman Ramalinga Raju resigned on Wednesday in India's biggest corporate scandal in memory, after saying that about $1 billion, or 94 percent of the cash and bank balances on the company's books at end-September did not exist. The company's shares plunged nearly 80 percent.

Following the shocking disclosure, the counter saw frantic selling on the bourses and nearly 143 million shares or a quarter of the total 575 million shares had changed hands and finally the shares closed down 77.69 percent at Rs.39.95 at the Bombay Stock Exchange (BSE), wiping out Rs.139.15 per share in a single day. After Wednesday's fall, the firm's market value has sunk to little more than $500 million from around $7 billion as recently as last June.

The revelation of the accounting fraud and the subsequent plunge of the shares has prompted a host of domestic and foreign brokerage firms like Angel Broking, Emkay Research, SMC Global, Religare Hichens Harrison, Goldman Sachs Group Inc., Citigroup Inc., HSBC Holdings Plc, and Credit Suisse Group AG to suspend the rating on Satyam.

Ramalinga Raju's disclosures today, regarding cooking up accounts of Satyam, are shocking and overwhelming...with realization that the cash is rather non-existent and the revenues and profits too are over-stated to a large extent takes away any fundamental argument in favor of Satyam, Religare Hichens Harrison said.

Reiterating its earlier negative stance on the company with sell recommendation, Religare Hichens Harrison added that it was discontinuing its fundamental target price on the company.

As book position of the company is not clear due to the fraud in accounting practices, we will stay away from any analysis of the stock, said Rajesh Jain, vice president of SMC Global.

This (fraud) clearly indicates that the current financials of Satyam cannot be relied upon, Credit Suisse said in a research note, adding, As such, we are unable to issue any further investment advice on Satyam and suspend our coverage of the stock.

While foreign brokerage CLSA has slashed its price target for Satyam to Rs.25 after the fraud became public, on grounds that calculating the company's book value has become meaningless, with cash out and asset/debtors unknown or uncertain, Macquarie has a 12-month price target of Rs.360 on Satyam, but warned that the stock would be extremely volatile in the near term.

The market participants said the fraud committed by Raju is the biggest-ever in India's corporate history and the magnitude of fraud committed was mind-boggling.

While Jayesh Shroff, fund manager at SBI Funds Management, said Satyam's fraud was a shocker, Sanjeev Patkar, research head at Dolat Capital in Mumbai said it was a serious under-the-belt blow for the market.

This is confidence-shattering because Satyam was a bellwether stock in a frontline industry. Cash balance had been an important element in valuing the stock...and now we're told this is not there. We expect the stock to crash to one-third of its value at start of the day (Thursday). I think a buyer for the company will come in, after due diligence, but the price may only be at Rs.50-60 a share, Patkar said.

According to Shankar Sharma of First Global, Satyam's shares could go down to Rs.10-30 levels but trading should not be stopped, as investors should be given opportunity to exit the stock.

The sentimental impact that was seen across the board was but obvious as the Chairman of Satyam which was one of the reputed company revealed the horrifying internal facts, said Ankit Sinha, CEO of Spark Advisory.

It wasn't expected. It is an unprecedented development and the magnitude of the situation was not anticipated, said Sheriar Irani, research head at JM Financial.

This is a black day for India, the software sector and corporate governance claims, said Arun Kejriwal, founder of Kejriwal Research & Investment Services in Mumbai. If at all there's an event that could be the biggest setback for Corporate India, it is this.

It's a major blow to sentiment, said Gurunath Mudlapur, managing director at Atherstone Capital Market in Mumbai. Market sentiment had just about started to improve after a long period of time, but with this development, the confidence is again getting shattered.

The Satyam case is entirely disastrous and the investors have been completely misguided and misled. People will not think more in the company as some more frauds may be revealed in the near future, said Paras Bothra, research head at Ashika Stock Brokers.

According to Jigar Shah, senior vice-president at Kim Eng Securities, there is no future for this stock.

The disclosure has also sent shivers in the market for Raju has managed to pull off the scam despite having independent directors on Satyam's board.

In a bull market people forgot about it (corporate governance), said Singapore-based Ashish Goyal, chief investment officer at Prudential Asset Management. In a bear market chickens are coming home to roost, so it gets highlighted at a time like this.

This company had a five-star independent board and it had a leading auditor and still it managed the con, said Tarun Sisodia, a Mumbai-based analyst with Anand Rathi Securities Ltd. So the question is why only Satyam, why not every other company? This is surely going to raise bigger issues.

Agrees R.K. Gupta, managing director at Taurus Asset Management in New Delhi. If a company's chairman himself says they built fictitious assets, who do you believe here? This has put a question mark on the entire corporate governance system in India, Gupta said.

The analysts also said the accounting fraud could impact other companies and cause a setback to foreign portfolio investment in India that was showing signs of picking up after heavy withdrawals in 2008.

The revelations, they said, could cause a major shake-up in India's enormous outsourcing industry, analysts said, and may force many large companies to investigate and perhaps revamp their back offices.

V.K. Sharma, research head at Anagram Stock Broking, the incident is mind-boggling and will have a telling effect on other IT companies and even other companies.

Risk taking will reduce. Ability to follow numbers will go down, he said.

The sectors which have done extraordinary well in a very short span of time such as IT and realty attracted distrust as Satyam's case has made investors uncomfortable about these companies, said Kapil Shah, analyst with DBM Wealth Management.

There are ramifications to the employees and clients of Satyam. There are ramifications to outsourcing IT industry, Indian economy, and therefore Indian markets, said K.N. Vaidyanathan, CEO of Alchemy Capital Management.

According to Amitabh Chakraborty, president (equity), Religare, Investors now need to pursue due diligence before investing in a company. They will be more cautious in future and take a careful look at the cash position in the balance sheet (and) enquire with the bankers, he said.

According to First Global's Sharma, the fraud would have a huge impact on FII and FDI sentiment in India. An emerging market has to be more careful. If a scam occurs in the US, that's the US and it has a lot more levy to get away with scandals but in emerging markets it absolutely needs to be levied otherwise its very easy to point fingers at India or China, Sharma said.

It is shocking! It has maligned India's image before the FIIs. In view of the current event, a lot of new regulations are expected in the near term by the regulators. Balance Sheets will be scrutinized meticulously, said Manish Sonthalia, vice president (equity strategy) of Motilal Oswal.

According to Anita Gandhi, head (institutional business), Arihant Capital, the fraud of unprecedented proportions would affect the Indian technology industry which was a very important driver for the country's stock market for nearly a decade.

Satyam's fraud is expected to lead a severe blow to the entire industry with investors being more cautious going ahead. This raises serious questions on the entire due diligence process conducted by the auditors of Satyam. What is more surprising is the chairman's confession after his resignation. This means, all along, he did have vested interest in keeping the investors in darkness, Gandhi said.

It's something very unexpected. It will make a major dent in the credibility of the corporate sector, said K.H. Vishwanathan, executive director at India-based audit firm RSM Consulting Group.

According to Deven Choksey, CEO at Mumbai-based brokerage K.R. Choksey, incidents such as Satyam would give foreign funds an opportunity to exit India. This raises a credibility issue and strict action is needed. One of the top four IT companies has done this. I think from the investors' point of view, there would be a serious knee-jerk reaction. People might use it as a reason to get out of India, he said.

Overseas investors or even the domestic investors will be concerned and maybe minutely examining the profitability of all the IT companies especially the midcap and smallcap would more be diligently watch by them, said S.P. Tulsian of

According to Ravi Mohan, region head of global ratings agency Standard & Poor, This will definitely send negative signals to the investor community in the near term.

There will be widespread impact on the sentiments. However, over a period of time, the confidence will be restored in the market, he said.

Amit Tandon, managing director of Fitch Ratings agrees. Tandon said the large scale manipulations in Satyam would have an adverse impact on the stock markets and on investor sentiment, in the short term but the market regulator would take appropriate actions to restore discipline and confidence in the market. The developments in (Satyam) definitely will have an impact on the general sentiments in the market in the short term. But this is not a systemic issue and is unlikely to impact other players in the long term, he said.

According to Nirmal Jain, chairman and managing director of brokerage India Infoline, the fraud case would not greatly affect the confidence in the Indian economy or corporates in general as such corporate governance issues arise in all markets, developed as well as developing.

But I hope this is one stray case and we do not have similar cases from anywhere else, he added.

We believe that the current event will inflict collateral damage to the [information technology] sector's premium valuations vis-à-vis broader markets, as well as could dent foreign investor faith in other Indian companies, Emkay Research analyst Manik Taneja wrote in a report.

According to Kim Eng Securities's Jigar Shah, the fraud committed by Satyam is similar to what happened to Enron in the US. The fraud, he said, would bring many more companies into scrutiny and there is a strong possibility investments in India will be affected.

It's going to impact the Indian outsourcing industry. Customers are going to be concerned about offshoring firms in India, said Sudin Apte, country head of Forrester Research.

Agrees Greg Kuhnert, a fund manager at London-bsed Investec Asset Management Ltd., which manages about $10 billion and sold its 0.15 percent stake in Satyam last month. When we look at further investments in the country, we'll have to get out a magnifying glass and really examine every bit very closely, Kuhnert said.

The analysts also warned that the incident has wiped out whatever little confidence that investors had in Satyam and would now make it difficult for the beleaguered company to scout for strategic partners or buyers.

Anagram Stock Broking's Sharma said Satyam has no option now. It (the fraud incident) reduces confidence (in corporate governance). It's absolutely wretched. There is no option right now (for Satyam). People will leave, clients will walk away. It's a very, very dire thing that has happened. There will be question marks raised everywhere, he said.

This development is going to have a major impact on Satyam's business with its clients, said analysts with Religare Hichens Harrison on Wednesday. In the short term we will see lot of Satyam's clients migrating to competition like Infosys, TCS and Wipro, they said.

This development was the last straw to break the camel's back, said Forrester Research's Apte. I believe possibly a third of Satyam's clients will exit in the next 2-3 months.

This is even worse than we had thought earlier. We definitely knew that its failed takeover bid was not motivated by any fundamental reason, but what has been revealed now is a complete surprise, said Avinash Vashistha, CEO of advisory firm Tholons Inc.

On its own, it's going to be very difficult for Satyam to clean it up. But now, with the kind of issues that have come out, it will be even more difficult for it to get a merger partner, he said.

First Global's Sharma feels Satyam is a suitable takeover candidate but it will face difficulty in finding a suitor. Satyam on paper would be a takeover candidate but in this kind of environment I don't think any suitor will turn up very quickly because ultimately you need to get an audit done, he said.

Meanwhile, the National Stock Exchange said it would remove Satyam from the 50-share S&P CNX Nifty index from December 12 and replace it with Anil Ambani-group firm Reliance Capital Ltd.

Satyam will also be excluded from the CNX 100 index, CNX 500 index and the CNX IT index, the bourse said in a statement.

However, Bombay Stock Exchange spokesman Kalyan Bose said the bourse has not decided yet whether it will remove Satyam from the benchmark 30-share index, the Sensex.