Satyam disclosure rattles Sensex

MUMBAI (Reuters) - The BSE Sensex fell more than 7 percent on Wednesday after the chairman of Satyam Computer Services resigned saying the No. 4 outsourcer had inflated its earnings over the past few years.

Traders said the shocking revelation could cause a setback to foreign portfolio investment in India that was showing signs of picking up after heavy withdrawals in 2008.

"This case for India is similar to what happened to Enron in the U.S. It will not stop at Satyam," said Jigar Shah, senior vice-president at Kim Eng Securities. "There is a strong possibility investments in India will be affected."

Shares in Satyam plunged as much as 73.1 percent to 48.9 rupees, their lowest since 1999.

"The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years," Satyam Chairman Ramalinga Raju said in a statement to stock exchanges.

Amongst Satyam's peers, bellwether Infosys Technologies was trading up 1.1 percent at 1,180/95 rupees, while Tata Consultancy Services and Wipro were down

3.3 percent and 1.4 percent respectively.

By 1:35 p.m., the 30-share BSE index was down 7.36 percent at 9,575.39, with 28 of its components in the red.

The market had started higher and rose as much as 1.3 percent early as risk appetite improved among foreign investors, who had bought more than $131 million of Indian shares over three days this year after withdrawing more than $13 billion in 2008.