Foreign investors are unlikely to shun India in the wake of a fraud scandal at Satyam Computer Services, with fund managers saying such events were not unique to the country and long-term prospects were good.

A dramatic slide in Satyam shares -- down nearly 80 percent on Wednesday and 46 percent on Friday -- have dragged down the broader market, and some fund managers reckon this makes stocks more attractive.

"It's a company-specific problem. You will find accounting irregularities anywhere in the world. It's a buying opportunity for India after it has been sold down," Adrian Mowat, JPMorgan's emerging market and Asia equity strategist, said in Hong Kong.

"It's a scandal, (but) it doesn't change the growth prospects of India. Let's face it, we've seen a lot of accounting scandals in the U.S."

India's benchmark index has fallen almost a tenth since Satyam's founder and chairman Ramalinga Raju resigned on Wednesday in India's biggest corporate scandal, saying about $1 billion or 94 percent of the company's cash and bank balance did not exist and profits had been overstated.


Foreign funds were key to a bull run that saw India's market rise six-fold in 2003-07. The benchmark index fell 54 percent in 2008, its worst year ever, after foreign funds withdrew more than $13 billion.

In a Jan. 8 note, Macquarie Research raised India to overweight from neutral as the country was trading at a discount to Asia ex-Japan.

"... with earnings expectations slashed, and a tremendous amount of monetary stimulus in the pipeline, the case for India has improved dramatically recently," wrote analysts Daniel McCormack and Tim Rocks.

To combat slowing economic growth, the Reserve Bank of India has slashed lending rates, and the government has announced additional spending.

Some investors in Europe said they would maintain their Indian investment policy unless it became clear that there was a widespread problem of malfeasance among Indian companies.

"We don't think it's the time to panic. Long-term investors should continue to prefer companies with good corporate governance records," Credit Suisse said in a research note, pointing to firms such as Infosys, Bharti Airtel and Housing Development Finance Corp.

Quick action by the regulator and better corporate governance norms would play a large role in supporting sentiment.

The Securities and Exchange Board of India, the market regulator, has already started an investigation into Satyam and the government has promised action to prevent other frauds.

Samir Arora, who oversees about $1 billion at Helios Capital Management in Singapore, said foreign investors may be scared off for a while, but expected confidence to return.

"The bad news is behind us, India will be an outperformer if action is put in place. Investors can make money there."


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