In this blog post, cited are Satyam Computer Services, Ltd. (SAY), Wipro (WIT), Infosys (INFY) and Nortel Networks Corp. (NT).

In another blow to the struggling and beleaguered Satyam Computer Services, Ltd. (SAY), the Indian government announced earlier today that it would not step up to help Satyam with any financial assistance. We had indicated in our previous post that possibility exists for a government bailout, although there was no precedence in the Indian financial history of a bailout of such magnitude. It appears that the govt. rejection of a request by Satyam Computer Services Ltd. for financial assistance of 1.5 billion rupees ($30.8 million) to meet short-term payment needs puts the company in dire straits.

It is also a clear indication that the company should not expect any financial support, either private or public, until the financial mess is sorted out which, according to the new government-appointed Board, may take between three to six months.

Larger issues loom not only of the survivability of Satyam and its 53K+ employees, but also of the future direction of the Indian IT Services sector itself. The Satyam stigma is clearly impacting other leading companies in the sector, mostly by default, and questions are already arising whether India may continue to be the favored destination for IT outsourcing.

China, with less than 10% share of global IT spending and clearly lagging India in IT services outsourcing, is rearing its head to capitalize from the Satyam fallout, and large multinationals -- soured by the Satyam mess -- may start looking at non-India-based outsourcers to fill its needs.

Although it is too early to speculate, the developing trend does not bode well for Indian outsourcers. Given what is at stake, it is only to their best intertest that the Indian business and financial community take stock of the current calamity and make the right choices for the longer-term vialibilty of the sector.

To make matters worse, shares of Wipro (WIT, Hold) and Infosys (INFY, Hold) fell in trading today after one their clients, Nortel Networks Corp. (NT) filed for bankruptcy protection.

Although both the IT service providers derives a smaller portion of its current revenues from Nortel, their trade receivables from the company may be in jeopardy. More importantly, it adds to the current negative sentiment for the Indian IT services sector and make the path to recovery just a bit more difficult.

Given the current developments at Satyam, we are downgrading our rating to a Sell from Hold, following our earlier suspension of all estimates for the company.