South Asia Investor Review

Satyam Computer Services Ltd., considered the poster child of India's information technology age, has shocked the world with a scandal of major proportions. The chairman of Satyam , a name that literally means "truth" in Sanskrit, said he cooked up key financial results, including a fictitious cash balance of more than $1 billion, raising doubts about the IT revolution hype in India that has attracted many international companies and significant foreign investments to the nation of over one billion people. The Wall Street Journal is reporting that B. Ramalinga Raju, founder and chairman of Satyam Computer Services Ltd., said in a letter of resignation that he also overstated profits for the past several years, overstated the amount of debt owed to the company and understated its liabilities. Eventually, he said, the scheme reached "simply unmanageable proportions" and he was left in a position that was "like riding a tiger, not knowing how to get off with...

In addition to the performance of BSE-30 index, there are two recent reports that seem to suggest that Indian and foreign investors are starting to worry about the bubble in Bombay. The first report indicated that Reliance Power IPO did not meet expectations. While the issue price was Rs. 450, it opened at Rs. 530 but declined soon after closing at Rs.372. The second report said Emaar, the Dubai-based real estate giant, has decided to delay its Indian IPO. With the impressive growth in the Indian economy and very healthy returns in the stock market for several years, a lot of investors have flocked to Bombay to profit from Indian stocks. This phenomenon has pushed the P/E ratios of Indian shares to new heights. According to the Bombay Stock Exchange which computes PE for its dozen odd sectoral indices, the average PE of BSE Realty Index was as high as 71.55 as on January 4, while the average PE ratio for BSE Capital Goods was second highest at 51.20. The BSE Power Index PE ratio was a...