Satyam disclosures rattle Indian shares

* Main index drops 7 pct, Satyam plunges 73 pct

* Satyam chairman resigns, says had inflated profits
(Updates to afternoon)

MUMBAI, Jan 7 (Reuters) - Indian shares fell more than 7
percent on Wednesday after the chairman of Satyam Computer
Services (SATY.BO) 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. [ID:nSP387669]

Amongst Satyam's peers, bellwether Infosys Technologies
(INFY.BO) was trading up 1.1 percent at 1,180/95 rupees, while
Tata Consultancy Services (TCS.BO) and Wipro (WIPR.BO) were
down 3.3 percent and 1.4 percent respectively.

By 1:35 p.m. (0805 GMT), the 30-share BSE index .BSESN
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.

It later came as off as investors braced for dismal
corporate earnings.

ICICI Bank (ICBK.BO), which had risen 16.7 percent over
four sessions of 2009, fell 9.8 percent to 472 rupees as
investors locked in profits ahead of a holiday on Thursday
before the earnings season kicks off with Axis Bank (AXBK.BO)
reporting on Friday.

In the broader market, losers outpaced gainers in a ratio
of nearly 6:1 on heavy volume of 385 million shares.
(Reporting by Ami Shah; Editing by Ranjit Gangadharan)