More firms may declare one-off losses

Regulators and industry apex bodies are maintaining that Satyam saga is just a one-off but, the market fears many more such one-offs to come to light over the next two quarters.

The extent of 2008 market collapse and hidden promoter interest meant that there must exist substantial losses, not exactly brought in front of the investors, so far. This was revealed in the report released by leading foreign institutional investor Credit Suisse.

The report said that unprecedented losses have been generated by market falls and the economic slowdown in 2008. Most of these losses remain uncovered for now, but this cannot continue forever.

The Satyam episode will make it more difficult for companies to keep hiding any losses. While one can only hope that no other company has a situation similar to that of Satyam, the FII notes that "a lot of one-off losses (some booked in the balance sheet) are going to come out in the upcoming two reporting seasons".

In the first-phase of last year, some losses were declared relating to derivative deals by companies. But the losses that are now expected may not remain confined to that.

Sebi’s Friday’s decision may act as trigger, perhaps. Sebi has decided to review audit papers related to financial statements of top Sensex and Nifty firms for the quarter ending December 2008 and audit papers related to 2007-08. Market observers said, "If there are hidden losses, it would be difficult to hide them as third quarter results are due in coming days."

In the Sebi’s committee on disclosures, the issue of bringing back shaken confidence of investors was discussed and studying the audit papers was one of the ways to bring facts to the light. Said the source familiar with the development, “Since the event (Satyam’s fraud) is substantial in nature the action has to be substantial. This is confidence-building exercise and things will be clear once the review is over.” Some more decisions are expected, based on the disclosure committee’s meeting.

The Credit Suisse said it is afraid of rising corporate governance risks in the Indian companies". Clearly, the focus for investment decision for the time being has shifted to corporate governance.