Shariah Compliant Investment

Shariah is the moral code and religious law of Islam. Shariah deals with many topics addressed by secular law such as crime, politics, and economics, sexual intercourse, hygiene, diet, prayer, and fasting. In terms of stock market investment, there are various companies such as tobacco, liquor, media, and interest earning banks which are prohibited by Shariah law. As per a report by DNA, globally there is a $1.5 trillion market for Shariah-adherent products and the same is expected to grow by around 20% annually. In the context of Indian stock market, 1,200 of the total 6,000 listed stocks are already Shariah-compliant.

Over the last one year, BSE Shariah Index has beaten Sensex by quite some margin mainly due to a bias towards FMCG stocks in Shariah Fund. Thus, the demand for Shariah compliant funds have increased handsomely in last couple of years and Mutual Funds are more than happy to oblige as evidenced by the Shariah compliant schemes launched by mutual fund houses such as Benchmark and Taurus. What’s best is the fact that such schemes have beaten benchmark handsomely in recent past as interest rate sensitive have mostly struggled recently due to a weak macroeconomic environment. 

As per an article by DNA, currently Shariah-compliant funds in India manage a total of Rs139 crore, a minuscule portion of the trillion-dollar-plus global Islamic finance pie spanning Malaysia, Indonesia, Kuwait, Bahrain and Saudi Arabia, according to Shariq Nisar, director of operations and research at Taqwaa Advisory and Shariah Investment Solutions (Tasis), a firm that provides guidance and support to individuals and corporates on Islamic finance.

According to Shariq Nisar, Shariah-compliant financial investing is still at a nascent stage. In Indian context, even though we have a full fledged BSE Shariah Index, there are limited mutual fund schemes and PMS products available right now to cater to this market which is expected to grow at a CAGR of 20%.

By Rajat Gupta – Research Analyst – Concept Securities Private Limited

Reform Push Continues

Overview

The Government of India, following up on its reform initiative approved legislative changes that will hike FDI limit in insurance from 26 per cent to 49 per cent while allowing the same amount in pension sector. The big test for the Government, however remains its passage in parliament as being legislative changes, they must pass the test of parliament. But going by the mood of the opposition the task couldn’t be tougher. However, there were other less contentious legislation such as modernizing the Companies Act and the forward contracts which may not face such opposition in Parliament

Key measures announced

• Up to 49 percent FDI will be allowed in Indian insurance companies as against 26 per cent earlier.
• In pensions sector, where no FDI was allowed to outside investors, foreign groups will be allowed similar limit as in case of insurance. This in effect means that if Parliament clears 49% FDI in insurance, 49% would be allowed in pension as well.
• A new Companies Bill was also adopted in the cabinet meet in order to make corporate governance more transparent to share-holders.
• The government also approved the 12th Five-Year Plan
• Announcements were also made on to operationalize infrastructure debt fund

Our View

The Government once again reiterated its intent on bringing the economy back on track amid stiff resistance from opposition parties regarding the contour of the legislations. However, there are less contentious legislations which may not face much opposition in parliament. The key positive which was cheered by markets was the fact that policy paralysis of the Government seems to be a thing of the past and while EPS upgrades may not happen immediately but PE expansion seems imminent. We urge the investors to enter the market and join the rally which still seems to have some legs.

By Rajat Gupta – Research Analyst – Concept Securities Private Limited