The Satyam affair could not have come at a worse time, analysts said, with growth in India slowing and the government struggling to revive the flagging economy.
There were even fears the Hyderabad-based company -- India's fourth-largest IT exporter -- could go to the wall, as existing clients run scared and potential bidders shy away from being associated with a tainted firm.
As news of the billion-dollar fraud broke, Satyam's advisory consultants DSP Merrill Lynch, which had been scouting for merger bids, said it had ended its engagement with the firm, citing "material accounting irregularities".
"Satyam is a dead company. Even if a white knight emerges, it will turn black," Hitesh Agrawal, head of research with Angel Broking, told AFP.
"There are too many uncertainties at present, relating to its actual book value, its future clients or likely legal action against the firm."
Satyam Computer Services founder and chairman B. Ramalinga Raju resigned Wednesday, admitting in a letter to the industry regulator and stock exchange that company accounts and assets had been falsified and profits inflated.
He said he had tried to cover his tracks but was unable to as the situation spiralled out of control.
"It was like riding a tiger, not knowing how to get off without being eaten," he wrote, adding that he was now prepared to go to court.
India's media picked over the scandal Thursday, suggesting parallels with the fall of Enron, where executives hid company losses and hyped the stock's value while secretly selling their own shares.
However, Raju insisted that neither he nor senior officials profited from the fraud. Satyam shares plummeted nearly 80 per cent Wednesday after Raju's resignation letter was made public.
India's National Stock Exchange immediately removed the firm from the its benchmark index Nifty while the New York stock exchange, where Satyam's depository receipts are listed, halted trading in its stocks overnight trade.
Satyam was spared further losses Thursday with India's stock markets shut for a public holiday.
With the company's future uncertain, and its 53,000 employees uneasy about their jobs, a potential merger or takeover of Satyam appears difficult as the deal may not be approved by shareholders of the potential buyer, analysts said.
"Recent developments will have an impact on the perception about corporate governance levels in India," added Sukumar Rajah, chief investment officer (equity) with mutual fund Franklin Templeton Investments India.
Commentators suggested that the affair would hit the Indian economy and foreign investor confidence, denting the perception that corporate governance in the country was better than in China, which has also seen rapid growth.
Indian shares fell more than 52 per cent last year, led by a massive exodus of foreign funds to the tune of $13.1 billion.
Question marks also hang over the role of Satyam auditors PriceWaterhouseCoopers in the affair, amid calls for greater regulation and transparency.
Launching a probe into PWC, the president of the Institute of Chartered Accountants of India, Ved Jain, described the issue as "serious" and said "strict action will be taken against auditors if found guilty".