By Paritosh Bansal

A VAST accounting scandal at India's Satyam Computer Services may increase investor nervousness about weak corporate governance and oversight in emerging markets.

Satyam founder and chairman Ramalinga Raju admitted on Wednesday to inflating Satyam's reported cash and bank balances by over 50 billion rupees (S$1.5 billion), but little is known about how widespread the problem is.

The scandal, which is being dubbed by some analysts as India's Enron, comes at a bad time for emerging markets.

Said Mr Lesley Hand, a partner in accounting firm KPMG's forensic practice: "It's got to shake confidence. And it is compounded in my mind by what I already call the fear complex that exists in all global markets."

Mr Raju's revelation came after days of turbulence at the Indian outsourcing company that began with a botched attempt by Satyam to buy two infrastructure companies in which management held stakes.

Satyam's shares plunged nearly 80 per cent in India and dragged down Mumbai's main benchmark index.

Themarket regulator, the Securities and Exchange Board of India, has already ordered an investigation into Satyam, and the scandal could lead to investor lawsuits in the United States targeting various parties, from the company's directors to its auditor, PricewaterhouseCoopers.

The scandal underscores the risks of investing in a market with insufficient regulatory oversight and protections.

Said Mr Geoffrey Coll, co-head of law firm Dewey & LeBoeuf?s India practice group: "When you are dealing with riskier regulatory environments like India or other emerging markets, there are real risks that the companies are being held to lower standards by their own internal regulators than companies in the West."

It also highlights the cultural risks inherent in India's family- owned businesses, which have long battled issues such as nepotism, mismanagement, weak boards and a lack of transparency and professionalism.

But the scandal should not have come as a total shock to investors, Mr Coll said.

"If I am an investor who is buying shares of companies from emerging markets, I am already going to hold some degree of scepticism," he said.

And such scandals have hardly been confined to the developing world, with immense frauds such as Enron, WorldCom and now Madoff rocking the developed world in recent years.

Some investors in Europe said they will wait for signs of widespread malfeasance among Indian companies before deciding whether to change their investment policy on India.