January 08, 2009


Satyam : India's Black Swan of 2009.

I know, I know, you have been reading too much about Satyam. And mostly you also know that I quote Taleb way too often here.

Satyam fits the bill of Taleb's Black Swan event.

It is highly improbable event. How many companies in India can boast annual revenues of 10,000 Cr? A couple of dozens may be out of thousands of listed entities. Now, when was the last time you heard about an Indian company's implosion on first page of pink paper? One could have never thought of a company of this size can implode so fast.

It is high impact event. There is a question mark on the future of 53,000 employees. The erosion of shareholders' value has been swift and huge. Even Unitech lost it's 90% of value over a year. But shareholders had multiple opportunities to exit. Here the events took place at such a rapid pace that big institutional investor exited at the bottom. And there is more to come.

It seems predictable in hindsight event. Now you will see people waxing eloquent about how Satyam's corporate governance or accounting practice had all the clues about this downfall.

OK. Now few more questions.

First, media need not get so righteous about whole incident. Lest we forget, this incident came to light by Raju's own confession. There was no media expose involved in this.
One famous TV anchor is master of making stock market investing look ridiculously simple. I clearly remember him saying that Infosys' profit growth rate is 15% YoY, hence a Price-to-Earning ratio of 18 is fair. Dude, if investing is all about growth rates and PE ratio, you should have been sipping martini at your sea-side villa after making truckload of money on Dalal Street. You may think media has no role to play in investor losing money. But, it is media (print, TV, electronic) which has been responsible for attracting people to stock markets without really informing them about the real risks. Unfortunately, people have to learn about risk the hardest way - by losing their money.

Two. Mr Raju said there was no money on the balance sheet at all. In 2007-08, Satyam paid Rs 5300 cr as salaries. Now, I don't think these are phantom numbers. They must have had few hundreds of crores expenses related to business - travel, office premises, utilities, hardware, software. All the vendors must have been paid too. Then how come there was no money?

Third. The big three - Infosys, TCS and Wipro - stand out shining from this entire episode. They had all that was needed to acquire Satyam. But, they stood on the sidelines watching the Mahindras and the L&Ts tyring to court Satyam. L&T which recently acquired some stake in Satyam must be licking their wounds. Surely, it talks about how the Big Three are really different.

This event is far from over.

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