Mumbai: Indian heavyweights Reliance Industries Ltd, Tata Motors Ltd, Satyam Computer Services Ltd and Infosys Technologies Ltd are set to become a part of an Islamic Index for companies from Brazil, Russia, India and China (BRICs), to be released by the international credit ratings agency Standard and Poor’s on Tuesday.
This is the first time that an international rating agency has developed an index to help Muslim investors across the globe invest in specific Indian companies in an Islamically compliant way.
Islamic religious tenets do not allow Muslims to invest in stocks of pork, alcohol, entertainment and gambling companies, among others. They also do not allow Muslims to invest in companies that have very high exposure to debt as well as those firms that earn an income from interest.
This is Standard and Poor’s third offering in the $300 billion (Rs12.3 lakh crore) global Islamic financing market. However, on both previous occasions, no Indian stock was included in their indices.
“Last year, we had done a BRICs 40 index and there was a demand for such an index to be Islamic-compliant. That is how we launched this,” says Alka Banerjee, vice-president, global index management, at Standard and Poor’s.
While the international Islamic finance market is growing at over 10%, according to some estimates, India’s financial community is just beginning to spot this opportunity. Kotak Bank, a relatively new private sector bank, recently announced that it will launch an international Islamic fund to help international investors buy Indian stocks that comply with the Shariah that lays down Islamic religious tenets.
Parsoli Corp. Ltd, an Ahmedabad-based stock brokerage, launched India’s first Islamic index, Parsoli Islamic Equity, in December 2006. It includes 41 companies from the universe of stocks chosen from the National Stock Exchange’s broad-based index, the Nifty 50, and the Bombay Stock Exchange’s benchmark 30-share Sensex.
Parsoli, which has been helping Indian Muslims in making Shariah-compliant equities investments, will also launch the Indian Islamic Fund, the first international Islamic fund with underlying Indian stocks, benchmarked against the Parsoli Index. It will be sponsored by Baader Wertpapier Handels Bank, a German bank. They are also launching a domestic Islamic fund with a local asset management company.
“Parsoli’s Islamic index is around 14% up this year, which is in tandem with the Sensex,” says Zafar Sareshwala, managing director of Parsoli. India’s bank index is up 23.59% this fiscal year through Thursday, outstripping the Sensex, which grew at 14.84%, in the same period. But banks are excluded from Islamic indices, including Standard and Poor’s. It had included five Indian companies, including ICICI Bank Ltd and HDFC Bank Ltd, in its BRICs 40 Index last year. But they were excluded from the Shariah compliant index because banks earn an income on interest.
“An Islamic index usually includes around 60-65% of the universe of stocks,” says Standard and Poor’s Banerjee. “Cash rich companies are good candidates to make it into such an index. The balance sheets of large Indian companies are often quite leveraged, unlike the large oil companies of Russia and Brazil,” she says.
Sareshwala, who is among the few who offer Shariah-compliant investing in India, says: “An Indian Islamic Index will do better than the BRICs Index because there is a lot of interest in the Indian stock market, from Middle Eastern and European investors.”
Standard and Poor’s plans to launch an India Islamic Index later this year.