Software scam — List of companies expand

The worst fears of investors are slowly coming true. The list of shady companies which have changed their names to cash in on the software boom is expanding day after day, thereby raising the spectre of another scam in the market. With software companies remaining the flavour of the market, dud companies — mostly finance firms — promoted by fly-by-night operators are busy changing their names by adding the software tag in a bid to take investors for yet another ride. As many as 23 companies operating in various segments — but not software — listed on the Bombay Stock Exchange (BSE) have changed their names by including the software or infotech tag to their original names. Market sources estimate that around 40 shady companies have already become `software’ companies all over India. Seeing the new trend, another 30 odd companies are in the process of changing their names to give the `software’ colour. It’s not only finance companies, even steel and food products companies are changingtheir names. “Certain investors are lapping up whatever is coming in the name of software. They are not checking whether the company is a genuine software firm or not. The phenomenal rise in several software stocks like Infosys, NIIT, Wipro, Pentafour and Satyam (who registered a 50% plus growth in earnings) seems to have prompted fly-by-night promoters to jump in,” said a fund manager, adding, “if things continue at this magnitude, many investors will burn their fingers. It has already become a scam-like situation.” The scam is brewing right under the regulatory framework of the stock exchanges, the Ministry of Finance (MoF) and the Securities and Exchange Board of India. MoF had even set up a team to watch the boom in the software and take appropriate measures to avert another scam in the market. However, the rise in the number of new shady software companies indicate that the MoF watch team, SEBI and the stock exchanges have not been able to prevent manipulators from leading the investorsup the garden path. A senior SEBI official said the regulator had made it mandatory for such companies (who have changed their names to suggest software interest) to reveal the income generated from software business in their quarterly results. However, fund managers who were not enthused by this move said many of these firms never released any financial results and investors rarely get any insight into their performance. “Indian investors have always showed a herd-mentality. They fail to see the warning signals. While investors are yet to show maturity, it is for the regulators to step in and stop this market manipulation,” said a fund manager. These shady software companies are trying to attract investors attention by riding on the bullish fervour created by some leading software companies. Satyam Computer’s Rs 10 share — which had once touched Rs 1,752 — has gone up to Rs 1,132 from Rs 261 and Wipro from Rs 1,315 to Rs 3180. Infosys had even touched Rs 5,000 before quoting at Rs 2,600 now(ex-bonus). An investor who holds 500 shares in Infosys was richer by Rs 2500000 when its scrip touched Rs 5,000 recently. Manipulators, who are into everything but not software, have apparently taken note of these developments and want to make a fast buck before time runs out. Investors who seem to be obliging have failed to see the writing on the wall. A series of scams involving finance companies, plantation firms and public issues have already caused considerable harm to the confidence of investors in the markets. The latest one involving software companies shows that the saga of scams continues.