Tumbling Satyam drags Indian shares down 7 pct

By Ami Shah

MUMBAI (Reuters) - Shares in Satyam Computer Services plunged more than three-fourth on Wednesday after the Indian outsourcer said it had overstated profits for many years, dragging Indian shares to their first loss in the new year.

The main stock index fell 7.25 percent, its biggest fall in more than two months, as the worst corporate scandal in memory triggered concerns it might scare foreign investors away from India just when they were showing signs of picking up.

Ramalinga Raju, chairman of Satyam, India's fourth-largest outsourcer, resigned and said in a statement the company's profits had been inflated over recent years but no other board member had been aware of the financial irregularities.

"The gap in the balance sheet has arisen purely on account of inflated profits over a period of the last several years," Raju said, adding he was prepared to face up to the legal consequences.

Traders said the revelation could hit foreign investment.

"I think from the investors' point of view, there would be a serious knee-jerk reaction. People might use it as a reason to get out of India," said Deven Choksey, chief executive at broker K R Choksey.

Satyam closed down 77.7 percent at 39.95 rupees after plummeting 83 percent at one stage to 30.7 rupees which was its lowest in just over 10 years.

It was the heaviest traded stock, clocking a volume of 143 million shares or a quarter of the total 575 million shares.