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
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