A 'great' opportunity gone awry for MFs

On December 16, when Satyam Computer Services (Satyam) declared that it wants to buy Maytas, it triggered investor activism, forcing the software giant to retract.

Buoyed by the power of shareholders, fund houses started stocking up the company’s shares, lured by its strong balance sheet and cash reserves of Rs 5,040 crore. Fund houses, including Sundaram BNP Paribas Mutual Fund, HDFC Mutual Fund, Tata Mutual Fund, ICICI Prudential Mutual Fund and a host of others, hiked their stakes.

As per the latest data from Value research online, a Delhi-based fund tracking firms, out of 15 funds for which data are available, Sundaram BNP Paribas, ICICI Prudential and HDFC Mutual Fund increased their exposures to Satyam considerably in December.

For instance, Sundaram mutual fund bought 53,00,000 additional shares of Satyam during the month, thereby increasing its exposure to the company by a staggering 1,122 per cent. ICICI Prudential mutual fund bought another 35,00,000 shares (314 per cent) and HDFC mutual fund bought 54,00,000 shares (106 per cent). Others like Franklin Templeton mutual fund added 17,28,000 shares and Tata mutual fund bought 2,65,000 shares of the now-tainted company last month.

Shares of the company fell 77.69 per cent to close at Rs 39.95 a share in Wednesday’s trading session, reducing its market capitalisation to Rs 2,692 crore. The crash came close on the heels of Satyam’s Chairman and founder Ramalinga Raju revealing manipulation in the books of the company. He said that the company had overstated its cash reserves and that the IT firm was actually in debt.

Interestingly, a large number of these funds were up in arms when Satyam declared the Maytas deal. Satyam had announced that it would acquire two companies — Maytas Infrastructure and Maytas Properties — for $1.6 billion (around Rs 7,680 crore) on December 16. Consequently, the company called off the deal after it saw the price of its American Depository Receipt (ADR) as well as stock price plunge overnight.

At that time, on behalf of Templeton (minority shareholder), a participant had said at a conference call that the move would deplete the company’s cash resources. “We don’t need Satyam to buy Maytas Infra. We are willing to go to any length to prevent this from happening,” he had said.

While most fund managers refused to comment on the issue since it concerned a specific stock, to many the revelations came as a “shocker”. A fund manager, who has substantially cut down its holding in the company after the now-abandoned Satyam-Maytas deal, the revelations would affect the stock market as it would make foreign institutional investors (FIIs) wary of Indian companies.

Other fund houses such as LIC Mutual Fund and IDFC Mutual Fund cut their holdings in Satyam. LIC mutual fund sold 49,000 shares, while IDFC mutual fund offloaded 1,47,000 shares of the company.

“After the Maytas episode, analysts and the investment community were considering the cash in the company’s balance sheet as a comforting factor. However, the realisation that the cash is non-existent and revenues and profits too are overstated, takes away any fundamental argument in favour of Satyam,” says a recent report by brokerage firm Religare Hichens Harrison.