BSE TASIS Shariah index generates interest among Kashmiri investors

BILAL HUSSAIN

The Bombay Stock Exchange [BSE] along with the Mumbai based Taqwaa Advisory and Shariah Investment Solutions [TASIS] recently launched an index comprising shares, of India’s leading 50 companies that meet the legal code of Islam [Shari’ah compliant stocks]. By the launch of the new index Muslim majority Jammu and Kashmir's capital market investors here are enthralled over it and is expected to attract fairly good amounts from the valley. Lots of capital market terminals across the valley too have received many enquires about the Shariah-compliant index.
The BSE TASIS Shariah index is considered to be formed by using the guidelines on a Shariah advisory board in Mumbai. The barometer consists of the 50 liquid Shariah-compliant stocks within the BSE 500 Index. The new index closed the year 2010 at 1,249.69 pts.
Islamic law doesn’t permit Muslims to invest in companies that derive significant benefits from interest, since usury is considered sinful in the faith, or from the sale of goods and services that are deemed sinful within the faith, like alcohol, tobacco and weapons.
Despite being a trillion-dollar industry worldwide, Shariah finance is only at a nascent stage in India, which has one of the largest Islamic markets in the world. India’s Muslim population is close to 140 million, which constitute close to 13 per cent of the population.
A November 2006 report by a committee headed by Justice Rajender Sachar reported that almost 50 per cent of the Muslim population is excluded from the formal financial sector in India.
Another report by the Reserve Bank of India puts the credit-to-deposit ratio among Indian Muslims at 47 per cent against all India average of 74 per cent, which means that compared to what they save, Indian Muslims are borrowing money that could be used to start a business or purchase assets at a far lower rate than the general population.
Back home, according to the Below Poverty Line [BPL] survey 2007-08 conducted by Directorate of Economics and Statistics [DES] 2007-08, the religion-wise distribution of BPL population exhibited dispersion of faith with 24.51 percent for Islam, 18.14 percent for Hinduism, 24.50 percent for Buddhism, 7.51 percent for Sikhism and only 3.12 percent for Christianity when compared with the corresponding religion wise population, it amply shows that highest incidence of poverty is among the Muslims and lowest among the Christians in Jammu and Kashmir.
The move by the BSE and TASIS could be considered as one of the steps to bring in the excluded community in the formal financial system but not an end in itself, a lot still needs to be done. As it isn’t yet clear how much the Shariah 50 will go towards fixing the situation, or whether it’s more likely to function as a way to make India an attractive destination for foreign Islamic finance.
Well, the launch of Shariah-compliant index some consider it as a move to bring in Islamic finance beyond the Indian boundaries rather than a move towards financial inclusion of the excluded lots, read Muslims in India.
Pertinently, the Islamic banking industry, which started almost three decades ago has made substantial growth and attracted the attention of investors and bankers across the world. A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business. At present, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to USD 1 trillion by 2013.
However, I believe that the index could be useful for the construction of Shariah-compliant financial products, like mutual funds and sorts. Madhu Kannan, the MD and CEO, BSE, on record too has said, “The index will build a base for licensing for the construction of Shari’ah-compliant financial products including mutual funds, ETFs, and structured products.”
The BSE TASIS Shariah 50 employs index constituent weight capping. Index constituent weights are capped at eight per cent at rebalancing, in an effort to increase the diversification within the index and ensure greater compliance with international regulatory and statutory investment guidelines, the officials believe. However, I think the TCS ltd.'s weight percentage of 8.31and RELIANCE's constituent of 8.14 is not a healthy sign for the new index. It means too much of dependence over the performance of these two individual stocks, which I think should be reconsidered.