Indian stocks fell the most in more than two months after Satyam Computer Services said profits had been inflated for years, heightening concern about corporate governance in the South Asian nation.

Satyam, the nation's fourth-largest software developer, plunged 78%, the most since listing in 1992. Reliance Industries Ltd., the country's largest publicly traded company, slumped 12% after the disclosure by Satyam Chairman Ramalinga Raju.

``It's a shocker,'' said Jayesh Shroff, who helps manage about $US4.7 billion at SBI Asset Management Co. in Mumbai. ``People will no longer be willing to take income statements at face value. This has also raised questions about cash holdings of other companies.''

The Bombay Stock Exchange's Sensitive Index, or Sensex, tumbled 749.05, or 7.3%, to 9,586.88, the most since Oct. 24. Five stocks fell for each that rose on the benchmark index. The S&P CNX Nifty Index on the National Stock Exchange slid 192.40, or 6.2%, to 2,920.40. The BSE 200 Index slumped 7.1% to 1,148.68. Nifty futures for January delivery dropped 6.5% to 2911.25.

The rupee fell to the lowest this week. It weakened 0.1% to 48.73 per dollar as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. The currency, which reached a record low of 50.615 last month, may weaken to 49 in the coming days, said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai.

`Satyam effect'

``It's the Satyam effect,'' he said. The rupee ``weakened in response to the poor sentiment in the stock market.''

Benchmark government bonds dropped the most in at least a decade after the government said it will increase debt sales to fund additional spending. The yield on the 8.24% note due April 2018 climbed 64 basis points to 5.95% in Mumbai, according to the central bank's trading system.

Satyam plunged 78% to 40.25 rupees. Reliance fell 12% to 1,200.75 rupees, the most since Nov. 5. ICICI Bank Ltd., the country's second-largest lender, fell 11% to 467.85 rupees, the most since Oct. 24.

Satyam's Raju resigned after announcing the company had falsified accounts and assets for ``several years.'' The company had 50.4 billion rupees ($US1.04 billion) of ``inflated'' cash on its balance sheet at the end of Sept. 30, Hyderabad-based Satyam said in a release today.

Regulator

Raju, 53, unsuccessfully tried to sell two companies last month to Satyam in the ``last attempt to fill the fictitious assets with real ones,'' Hyderabad-based Satyam said in a statement to the Bombay Stock Exchange, citing the chairman.

C.B. Bhave, chairman of India's capital markets regulator, said coordinated action would be needed on Satyam Computer, in an interview with CNBC-TV18 television channel.

Stocks that recorded the biggest declines on the Sensex include Jaiprakash Associates Ltd., India's No. 1 builder of dams, which dropped 29% to 71.50 rupees, the most since June 2004. Reliance Communications Ltd., India's second-largest mobile- phone company, fell 17% to 206.50 rupees, its steepest decline since Oct. 10. DLF Ltd., the top developer, declined 16% to 233.85 rupees, the most since Oct. 24.

Bloomberg News