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Scenario of Commodity Risk Management Practices used by Indian Construction Companies

Hiren Maniar

Abstract


The current global commodity rout and climate of volatile commodity prices has created enormous pressure on Indian construction companies’ profit margins, risk profiles, and overall performance; which is further being hampered by sluggish growth in Indian infrastructure sector. Moreover, commodity price uncertainties are pervasive throughout the construction project lifecycle, occurring at project initiation and continuing through execution. This commodity price volatility can lead to higher project costs and more risk to various project stakeholders like suppliers, contractors, and owners which can cause financial distress for all parties involved in the construction process. This research study addresses the problem of commodity price volatility being faced by Indian construction sector. Main purpose of this research paper is to study the commodity risk management practices being adopted by surveyed 50 Indian construction companies on various parameters taken for the study like critical commodity, important issues in manging commodity risk, objective and strategy, contracting strategies, hedging instruments & tenure, hedging policy, commodity risk pass-through to customers, bottleneck in implementing commodity risk management practices and commodity sourcing strategies hedging policy decision and hedging benefits. This research study has used questionnaire as primary data collection tool and Microsoft Excel spread sheet and other statistical techniques for analysing research data for the study. Overall research study has made an attempt to illustrate a viable scenario about commodity risk management practices and policy used in managing commodity price risk by the surveyed 50 Indian construction companies, and findings would give further research direction for further study on commodity risk management scenario to be tested for other Indian companies, especially infrastructure sector companies who are extensively using project inputs mainly commodities/raw commodities.


Keywords


Indian construction companies, commodity price risk, price volatility, hedging, risk pass-through

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