Mumbai: Reliance Money, the retail broking arm of Reliance Capital Ltd, the financial services firm of the Anil Dhirubhai Ambani Group (Adag), is set to launch India’s first portfolio management service (PMS), where managers will create a basket of stocks compliant with Islamic investment regulations for each client.
Islamic tenets, called Shariah, bar Muslims from investing in banks (because they earn money through interest which is haram or prohibited, according to the Quran), liquor and gaming companies (the Quran also proscribes liquor and gambling). Islamic practices also do not allow investing in companies whose debt is more than one-third of their market capitalization and receivables are less than 5%.
New services: A Reliance Money outlet in New Delhi. (Photo: Harikrishna Katragadda/ Mint)
Portfolio management services have gained popularity with investors even as the Bombay Stock Exchange’s benchmark index, Sensex, has appreciated by at least 45% for two consecutive years in a row.
This year, however, the Sensex has shed 14.79%, and closed at 17,287.31 points on Wednesday (the stock markets were closed on Thursday).
There are only two brokerage firms and no mutual funds or insurance products that are Shariah-compliant in India although at least 150 million Indians are Muslim.
Reliance Money will create and market the new service and an Islamic brokerage called Parsoli Corp. Ltd will provide the Shariah guidelines and certify that the scheme is Shariah-compliant.
“There is a huge requirement for this because as the market grows, it is hard for individual investors to make money on their own,” says Zafar Sareshwala, Parsoli’s chief executive officer.
Reliance Money will sell this product in India and West Asia where there is a growing interest in Indian stock markets. Reliance Money is expanding its presence in this region, says Sudip Bandyopadhyay, its chief executive.
Reliance Money, which helps clients invest in equities, derivatives and commodities, typically offers such services for amounts between Rs5 lakh and Rs75 lakh. It charges no money if the client earns less than 8%.
If the client earns a return of 8-20%, the fee is 10% of the returns and if the earnings are more than 20%, the fee goes up to 20%.
“More than 85% of stocks in the Indian market are Shariah- compliant,” Bandyopadhyay said. “So there is a huge opportunity to create such products,” he added.
Both regulatory reasons as well as religious views that investing in equity is haram have led to the lack of such financial products in India.
There are at least 300 institutions spread across West Asia, Europe, Asia and the US that offer Shariah-compliant banking and financial services and manage assets valued at $500 billion (Rs20.25 trillion), according to an FTSE Global market report released in March 2006.
The situation in India is also changing. Sareshwala, for instance, has now created a Shariah-compliant Parsoli Islamic Equity Index, which, he says, has outperformed the benchmark Sensex.
His index is down 6.5% in the past six months, a period in which the Sensex has lost 12.3%.
All this has helped to increase the investor base among Muslims. Sareshwala’s client base has increased to 13,000 from less than 2,000 just a year ago.
While there is clearly a growing interest in such investing, Reliance Money’s Bandyopadhyay says it is hard to estimate demand for products such as one his firm is launching because currently no other player offers this.
There is very little scope for Shariah-compliant investing in India right now because there are very few products, he says. “So a lot of confidence needs to be built.”