Satyam not seen scaring foreign investors off India

MUMBAI (Reuters) - India is unlikely to shunned by foreign investors due to the fraud scandal at Satyam Computer Services (SATY.BO), with fund managers saying such events were not unique to the country and long-term prospects were good.

Sharp losses in Satyam's stock -- nearly 80 percent on Wednesday and around 50 percent by Friday afternoon -- have dragged the broader market down, and some fund managers said a the reaction had taken stocks to attractive levels.

"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, it doesn't change the growth prospects of India. Let's face it, we have seen a lot of accounting scandals in the U.S."

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

Foreign funds were key to a bull run that saw India's market rise by six times between 2003 and 2007. The benchmark index fell 54 percent in 2008, its worst year ever, after foreign funds withdrew more than $13 billion.

Macquarie Research, in a January 8 note, raised India to overweight from neutral because it said 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," Analysts Daniel McCormack and Tim Rocks said in a research note.

To combat slowing economic growth, the central bank has slashed key lending rates and the government has announced additional spending.

Some investors in Europe said they would wait for signs of widespread malfeasance among Indian companies before deciding on a change in the Indian investment policy.

"We do not think it is the time to panic. Long-term investors should continue to prefer companies with good corporate governance records," Credit Suisse said in a January 8 research note, pointing to firms such as Infosys (INFY.BO), Bharati Airtel (BRTI.BO) and Housing Development Finance Corp (HDFC.BO).

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 here," he said.

(Additional reporting by Jun Ebias in HONG KONG)

(Editing by John Mair)