Bonds, Currencies & Commodities
Commodity prices falling due to weak demand, not just strong dollar

The conventional wisdom is that commodity prices go down when the dollar rises. But the recent weakness in commodities is not just due to a higher dollar, says Credit Suisse. Weak economic data coupled with slack in demand are the major reasons

Commodity prices all over the world have dipped, while some like copper and gold have crashed. A lot of investors have blamed it on a strong US dollar. However, Credit Suisse thinks otherwise. It feels that the global economy, particularly the US economy, is still weak. “It is notable that the broad US dollar trade-weighted index has not moved above its recent range, with our foreign exchange strategists suggesting that talk of a US dollar bull market is premature.” In other words, the strong US dollar is only a temporary phenomenon and the US economy is expected to slow down and this being reflected in lower commodity prices.

Credit Suisse expects the global economy, especially the United States GDP, to contract to 1.5% SAAR (seasonally adjusted annual rate) in the 2nd quarter of 2013. The report said, “It should be noted, however, that in part the rebound was payback for the very weak Q4, with our economists expecting growth to have slowed to 1.5% in Q2.”

Much of the demand in commodities over the past decade has been largely fuelled by insatiable Chinese demand and its real estate growth. But this is expected to slow down. Apart from the stronger US dollar, the Chinese economy has also played a part in the fall in commodity prices as demand was weaker vis-a-vis lower GDP, at 6.6% SAAR. Credit Suisse expects the Chinese economy to slow down and stabilise. It said, “Looking ahead however, our long-held view that growth in H2 will slow a little continues to play out, with early signs that the surge in infrastructure spending may be peaking out, while the growth in each of housing sales, starts and completions looks to have peaked.

Iron ore prices continued to fall. Credit Suisse feels that China’s house prices have peaked out while industrial production has slowed down. Therefore, the excess production that is unmet by demand needs to be rid off, albeit at lower prices. The graph below shows how corporations and traders are stuck with high inventories piled up in the preceding years and are trying to get rid of it.

Credit Suisse expects the iron ore market to be smaller by 75 metric tonnes in the fourth quarter, compared to the first quarter.

Copper is showing downward trend as well, when recently it touched record inventories on the London Metals Exchange. The report said, “Inventories at downstream processors rose fractionally to about 5.4 days’ demand in April, reflecting buying support as prices came off. Nevertheless, further restocking is unlikely, with few operators willing to purchase large parcels at a time when concerns about seasonally slowing orders are beginning to mount”

Generally speaking, commodities world over continue their downtrend as demand slows down and, more importantly, supply and inventories reach record levels. According to Credit Suisse, the table below shows the performance of different commodities.


Phaneesh Murthy iGate scandal: Time for Directors and Officers insurance?

A third sexual harassment case against Phaneesh Murthy’s should wake up the corporate sector to insurance for Directors and Officers that also covers liability due to financial misstatements, sexual harassment and vulnerability to stakeholder claims, but Indians companies seem to be slow in getting such protection

Phaneesh Murthy, president and CEO of iGate was sacked yesterday for alleged sexual harassment. A statement by iGate  innocuously says that Murthy was sacked for not disclosing his relationship with a subordinate Araceli Roiz who is global head of investor relations. Earlier, Murthy was given boot by Infosys over a sexual harassment scandal. When Infosys decided to settle with its former employee Reka Maximovitch at $3 million plus nearly $1 million more in costs, more than half the money came from its insurance company. Infosys paid $1.5 million and Phaneesh Murthy, the accused, paid nothing. Jennifer Griffith, another Infosys employee in the US also alleged that Murthy had sexually harassed her. Even though Murthy had denied it, the suit was settled for $800,000.

All this has thrown light on the issue of liability for Director and Officers and insurance cover for them.

While the chances of litigation are definitely higher in the US than in India, exposure to scams and global practices should be pushing corporates to buy Directors and Officers (D&O) insurance to cover their risks. With examples like the Satyam scam, the sexual harassment in Infosys and now possibility of the iGate lawsuit with news of Phaneesh Murthy’s alleged sexual harassment incident, there are good reasons for Indian companies to rethink. Companies with overseas operations will surely buy it due to litigious environment in overseas jurisdictions and the prohibitive legal costs abroad.

Some of the main areas of D&O coverage is as follows –

Mis-statement in prospectus

Inaccurate statement of financial conditions

Errors in annual accounts

Conflict of interest

Lack of judgment, diligence, good faith

Mismanagement of funds

Unfair allotment of shares

Using insider information

Unwarranted dividend, salary, compensation payments

Unfair dismissal of an employee

Some policies may be silent about covering lawsuits due to sexual harassment and hence buyers need to be aware of it. Each policy is usually tailored for the respective clients and hence the clause can be added. Moneylife had written to five private insurers to confirm if sexual harassment is covered in their policy, but got response from only two. According to Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance, “Yes, the D&O policy would trigger on such lawsuits being filed.”

According to Mukesh Kumar, Head - Strategy Planning, HR and Marketing, HDFC ERGO, “Our D&O policy covers directors, officers and employees against claims with respect to any actual or alleged wrongful or unfair employment practices. This broadly includes but is not limited to termination of employment, misrepresentation, discrimination, harassment, sexual harassment, failure to employ or promote, demotion, invasion of privacy, defamation or infliction of emotional distress.”


The demand for D&O policies in India is increasing with listing of Indian companies on international stock exchanges. There had been talks about the Securities and Exchange Board of India (SEBI) making it mandatory for all listed companies to buy D&O insurance, but only 10% of publicly listed companies in India have D&O insurance. The main buyers of D&O cover are companies listed or planning to list on the Nasdaq and those in IT. Even with the increased awareness of D&O, the biggest manufacturing companies and blue chip corporate groups continue to be complacent about directors’ risks.

According to Dr Amarnath Ananthanarayanan, “The response has not been good, but the trend is increasing as more awareness is spreading in the market. The awareness is still very low in the SME segment as opposed to the larger corporates. We would approximately have 20 such covers for private sector companies. This is not necessarily companies that have overseas operations or plan to list on foreign stock exchanges. But, there is obviously more inclination for companies listed abroad or planning to list abroad to buy these covers.”

Mukesh Kumar, says, “In the last couple of years, we have seen a growing demand for D&O insurance cover from Indian companies and there has been a transition from concept selling to general awareness. Stringent regulations, complex listing requirements, increasing legal fees and litigious environment have contributed towards an increasing demand for this policy. Our D&O book mostly includes private companies. However, there are some large public sector companies as well.”


It is possible that Indian companies consider D&O cover as a cost rather than an investment as well as belief that Indian environment is less litigious than the western countries. Dr Amarnath Ananthanarayanan, says, “We receive requests for policy indemnity limit from $1 million to $50 million and the price varies depending on the circumstances and client type. At a very high level of approximately a $1 million of cover, the annual premium would be $2,000 for a private limited company.”

According to Mukesh Kumar, “Typically Indian multinationals, listed companies and companies that plan to list their securities on stock exchanges buy D&O insurance. We have also seen an increasing demand for this policy from companies which are planning acquisitions/mergers or capital raising via the private equity route. The D&O market is very soft at the moment and the premiums tend to be very competitive.”

Tata AIG D&O insurance may have come handy for Satyam Computer Services with the Rs7,000 crore scandal. Even though confession to fraud is considered as an exclusion from the D&O policy, media reports last year state that D&O liability cover requires the insurer to defend till such time that the officer is criminally convicted. It adds that Tata AIG had to foot Satyam founder Ramalinga Raju’s legal bill of Rs60 crore. When Moneylife contacted Tata AIG to find about the case, they stated that Tata AIG policy is not to talk about their clients or even confirm that a specific company is their client.

Read - Phaneesh Murthy: Let off by Infosys, sacked by iGate over sexual harassment charges



nagesh kini

4 years ago

Why on earth should the companies by themselves or through insurance covers be asked to pay for the personal indiscretions of its directors and officers only? This gives them a licence to do what they feel and get away with gross misconduct, knowing full well that this will be paid for!

nagesh kini

4 years ago

Why on earth should the companies by themselves or through insurance covers be asked to pay for the personal indiscretions of its directors and officers only? This gives them a licence to do what they feel and get away with gross misconduct, knowing full well that this will be paid for!


4 years ago


R Balakrishnan

4 years ago

It is so difficult getting the insurance cos to give a quote, unless you have personal contacts. No general insurance co seems to want business. And in India, this policy is offered by Ergo & Tata Aig only. The nationalised insurance cos do offer, but by the time you get a quote from them, it is time for the next AGM



In Reply to R Balakrishnan 4 years ago

I am sure many private insurers offer it as well as government insurers. Apart from Tata Aig and HDFC ERGO - Bharti AXA, Bajaj Allianz, ICICI Lombard, Chola and few other private offer D&O.

Can traders create a “vote bank” to assert themselves?

More than five crore traders in the unorganized sector are providing livelihood to more than 22 crore people, according to a traders’ lobby. Fed up with “anti-trader” policies they want to assert themselves politically

Confederation of All India Traders (CAIT), the apex body of the trading community, has declared that the utter neglect by political parties about their issues has prompted them to assert themselves into a powerful force that will make politicians sit up and take note. They cite many anti-trader policies of various governments as having prompted this move. Among the issues are:

  • Allowing FDI in multi-brand retail
  • Disparities and anomalies in current VAT tax regime
  • No step to redress the genuine grievances.
  • Insults like calling traders as middlemen who need to be thrown out from the supply chain
  • Huge paperwork under various tax laws


According to Praveen Khandelwal, general secretary of CAIT, for all other segments like big industry, MSME, labour, farmers, transporters, consumers, corporates, cooperatives, street vendors, there are government policies and exclusive ministries. It is only the trading community, which has no policy but multiple ministries governing them under different Acts and rules, he alleged.


However, the decision of CAIT to create vote bank should also be looked from the angle of its political affiliation. Just last week, leaders of CAIT met Gujarat chief minister Narendra Modi at his residence in Ahmedabad. The release from CAIT said that Modi expressed strong opposition to FDI in retail and other issues raised by traders. It may be a pure coincidence but it must be noted that the leaders of CAIT formally decided to create a vote bank at Ahmedabad on 16th May.


Khandelwal said, “The present governance has made a hell-like situation for traders who have been largely burdened with lots of paper work and often subject to harassment and victimization at the hands of bureaucracy. It is noteworthy that traders have been forced to spend much more money on collection of tax for the government in comparison to tax collected and yet they (traders) have to face various penal actions, even if they are not at fault. All such circumstances have generated a feeling amongst the traders to go for a vote bank consolidation.”


As per a study conducted by CAIT about 25% traders in the country are actively involved in politics whereas rest 75% are neutral—in the sense that they do not have any political affiliation. However, traders feel that despite of their intense contribution, political parties are less interested in resolving their crisis. It has also been revealed in the study that on the one hand the union government is bringing various new Acts and policies to oust traders from their business whereas on the other hand the state governments are also not lagging behind in multiplying problems of the traders, CAIT said in a release.


There are about more than five crore traders in unorganized sector providing livelihood to more than 22 crore people in the country. The traders are contributing nearly 15% to gross domestic product (GDP) of the country and have an annual growth rate of 15%, CAIT said in a release.


“In spite of such a magnificent contribution to national exchequer and even funding the political parties, the trading community and its issues and concerns are never on priority of any political party. That is why the traders have now realized that in this era of vote bank politics, the conversion of traders into a vote bank will only force the political parties to realize the importance of traders,” the trader's body said.


CAIT said, after taking stock of the situation on 4th May at Chennai at its National Governing Council meet, the idea of creating a vote bank gained momentum. At a meeting held on 16th May at Ahmedabad, the trade leaders from different states decided to launch a national campaign and to work out a strong modality for consolidation of traders into a vote bank. The trade leaders are scheduled to meet at Jaipur on 30 May 2013 to discuss the issue further. This would be followed by a final meeting on 15th June at Raipur in Chhattisgarh, it added.


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