The Satyam scandal has rocked Indian IT and India Inc. But it will not be enough to convict B. Ramalinga Raju, Satyam's founder, his family members, and other former directors and executives of Satyam who were involved in perpetrating India's largest corporate fraud. For agencies like Sebi and the Ministry of Corporate Affairs, this is an opportunity to clean up the system and present a better face of India and its markets to both foreign and domestic investors. More importantly, this is a chance to woo back the small investor, who has fled the market in panic.
Sebi, for instance, should go beyond the Satyam case to ensure that no other listed company cooks up its balance sheet. It, along with the registrar of companies, should investigate the books of accounts of several firms, especially those that have been accused of inflating their revenues or profits, or both, in the recent past. CLSA, an analyst firm, has listed over a dozen such cases. A step in the right direction was taken by the regulators with their decision to closely study the 2008-9 third quarter results of all the companies on the Sensex and the Nifty.
At the same time, the Ministry of Finance must examine the existing laws and regulations. Maybe it will find that Sebi should be given more teeth so that it can take immediate and strong action against erring promoters. Maybe there is a need to establish a system so that the laws are implemented effectively. India needs to create an environment where no one who breaks the law can hope to go scot free because of political and other connections. In future, such people and institutions should think thrice before harming investors' interests.
If this is done, it will prove to be a huge confidence booster for investors. Although the small shareholder may wait for the markets to settle down and the current wave of volatility to be over, he will want to get back to equity only if he believes that there are no other Satyams lurking around in the bourses. The minority investor has been scorched badly by a bearish 2008. At the moment, he is wary, desperate, hurt and angry. A better regulatory mechanism can be one of the balms that he's looking for to change his mind. It's time for the regulators and policymakers to act.
