Mumbai: Besides the usual inspection of a stock’s value and growth potential, independent broker N.V. Shah runs through an additional list of questions. Namely: Is the investment supporting violence?
“No matter what the upside, I do not invest in meat-packing companies, fishing companies or companies that manufacture fishing trawlers, nets, or guns,” says Shah, who has been investing on the Bombay Stock Exchange (BSE) since 1991. “Anyone who condones or incites violence is as guilty as the person actually committing the violent act.”
Shah is a strict adherent of ahimsa, the philosophy of non-violence. But unearthing investment-worthy companies that meet his criteria can be a difficult process—not to mention subjective.
Dow Jones and Co., a subsidiary of News Corp. and the publisher of The Wall Street Journal (WSJ) and the developer of multiple investment indices, hopes to change that with its Dow Jones Dharma Indexes. As Parliament prepares to debate an amendment to the Indian Trusts Act of 1882 that would allow temples and religious trusts to invest in the stock market, Dow Jones has launched the new index to guide investments in so-called dharma-compliant stocks.
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Beyond religious institutions, index creator Dharma Investments is also reaching out to believers to help them become a part of the Indian stock market boom without compromising their religion. While similar to the Dow Jones Islamic Indexes, based on shariah or Islamic law, the new Dow Jones Dharma Indexes will conform to religious ideals of Hinduism and Buddhism, such as ahimsa and lok-samgraha, or leadership and social responsibility.
But with previous efforts to launch such ethical funds stalled and Hinduism and Buddhism not offering specific financial guidelines as the Quran does, experts wonder if it’s even possible to come up with a framework of principles. Investors themselves say they have devised largely individual codes of investment, filled with grey areas and ethical landmines.
For example, Vallabh Bhansali, promoter of Enam Financials, has a large stock research outfit, but doesn’t do research or recommend stocks of hotel, non-vegetarian food processing or cigarette companies.
Shah says he does not invest in Nestlé India because it sells chicken Maggi noodles. Venky’s (India) Ltd is off limits because the company sells meat. UB Group is also forbidden because it sells alcohol.
Though many brokers and investors follow these norms, they say it is easy to get mystified. Unlike Islam where there are specific fiscal directions such as interest being forbidden, Shah says, “Hinduism and Buddhism do not have such specific rules and different interpretations can cause confusion.” He says that while a principle like ahimsa is easier to follow, other ideals are more subjective and harder to define for investment purposes. “Take the concept of satya, or truth. It is so relative. I can apply it to my own business practices. But how do I know if the company I am investing in is also following it?” Shah asks.
Yogesh Kothari, another broker with BSE and a follower of the Vaishnava sect of Hinduism, agrees that conflicts are inevitable. Declining to name specific companies, he says he has ceased investing in firms whose business models lead to the destruction of living beings. For instance, if a company announced plans to construct slaughterhouses, he would exit such company. But in the past, he has also bought back the stock, if the company’s plan didn’t materialize.
Religious institutions face a different kind of dilemma. Secretary of the Somnath temple trust Ashok Sharma says that even if the government allows temples to invest in the stock market, he would face a moral question. “Our income comes from donations. People gave that money to us to maintain the temple, the deity and do good work with,” he says. “How can we gamble with that money on the stock market?”
Yet, the new index is not likely to resolve the confusion because Dharma Investments refuses to explain what principles are being followed to screen companies. “These principles are the intellectual property of Dharma Investments and Dow Jones and we cannot reveal them,” says Nitesh Gor, chief executive officer of Dharma Investments.
The index currently has 250 stocks, Gor says, and after applying its principles, companies from the following sectors were excluded and found to be against the principles of Hinduism and Buddhism: aerospace and defence, brewers, casinos and gaming, pharmaceuticals, tobacco, alcohol, adult entertainment, animal testing and genetic modification of agricultural products.
Dharma Investments did disclose two guiding principles—ahimsa and lok-samgraha—on the basis of which stocks such as Larsen and Toubro Ltd (L&T), Infosys Technologies Ltd, Bharti Airtel Ltd, ICICI Bank Ltd, Housing and Development Finance Corp. Ltd were selected.
But even in this short list, there is uncertainty. Since non-violence is a guiding principle, some observers were not clear how L&T, with its growing defence equipment manufacturing business, cleared the muster. Or how ICICI Bank, known for an aggressive loan repayment strategy, was allowed entry.
Responding to a question about L&T, Gor says, “The company is a construction and engineering company, so it was not restricted under the sector screens. However, the company does have ties to nuclear power and defence, but it is a question of the materiality of involvement.”
He says L&T’s inclusion had been flagged though, and the index had initiated research into the allegations. Its findings, he says, “will be included in the reputation risk report”.
Another issue is how this index will actually work. Right now, Dow Jones plans to sell licences for the index to mutual funds and asset management companies (AMCs)—without revealing the principles it is based on—to create individual packages for end users such as religious institutions, trusts and individuals.
However, AMCs don’t seem to be in a hurry to launch such products. A handful of large AMCs contacted declined to be named, but overwhelmingly said they were not aware about the launch of the index and were not clear on how they will create packages.
And they said the Dharma Index is not the first attempt for ethical investing targeting Hindus and Buddhists.
In 2001, JM Financial Mutual Fund proposed an ethical fund that planned to invest on principles of ahimsa and avoid companies in liquor, hospitality, pesticides or meat processing. However, it never got off the drawing board as it was difficult to draw clear lines between which companies really met the principles.
Still, religious leaders say this kind of an index is better than no index at all. Sri Sri Ravi Shankar, founder of the Art of Living Foundation, is a part of Dow Jones’ religious council— among other Hindu and Buddhist leaders such as Srimat Vanamamalai Ramanuja Jeeyar Swami, the Pramukh Swami Maharaj, Venerable Sangharaja, the Patriarch of Cambodian Buddhism and Chisho Mamoru Namai, director of the Institute of Esoteric Buddhist Culture.
Shankar calls the index “long awaited, because an ethical gauging is essential”. The Art of Living Foundation, which runs chapters in more than 140 countries, prescribes that religious investments are like ethical investments, environment-friendly, free from child labour and exploitation, not harmful to health, and ensuring sustainable growth.
Shah says the index could open a world of opportunity for others who did not understand the stock markets.