VIEW-Satyam a short-term shock for India shares

By Nishant Kumar

MUMBAI (Reuters) - The fallout from events at Satyam Computer Services will threaten foreign flows into Indian shares in the short-term as investors turn more guarded, a top executive at money manager DBS Cholamandalam said on Friday.

Ramalinga Raju, founder and chairman of Satyam, India's fourth-biggest software services exporter, stunned investors across the globe on Wednesday when he said the firm's profits had been falsely inflated for years.

The event, quickly dubbed "India's Enron", adds more event risk to a market that already faces poor third quarter results as well as a national election later in the year, Sanjay Sinha, chief executive of DBS Cholamandalam Asset Management, said.

"Companies as a source of event risk was not something that was discounted in the market. This has changed that perspective," Sinha told Reuters.

"Some time will be required for the confidence to come back that there are no other major skeletons which are going to tumble," he said.

Foreign investors have played a key role in the blistering 500 percent rise in Indian shares during the five years to end-2007.

Last year, when they pulled out more than $13 billion (8.5 billion pounds), spooked by the global credit crunch and a slowing Indian economy, the benchmark stock index plunged by more than 50 percent to record its worst annual fall.

Foreign fund inflows have recently showed early signs of revival with foreign institutional investors turning net buyers of Indian shares in the first four trading sessions of 2009, but the fallout from Satyam might slow things down now, Sinha said.