Category Archives: India

India’s first Shariah compliant stock index could boost Islamic mutual fund industry

India’s first Shariah compliant stock index could boost Islamic mutual fund industry

The Bombay Stock Exchange (BSE), Asia’s oldest bourse, launched its first Sharia-compliant stock index in December in a move that could boost offerings of exchange traded funds (ETFs) and mutual funds to tap into India’s fast-expanding economy.

Islamic finance in India, home to the world’s second-largest Muslim population after Indonesia, is still in its infancy and the new benchmark should help channel socially-conscious investor savings of more than $1 trillion in the coming years, including from the cash-rich Gulf.

The BSE TASIS Sharia 50 Index includes blue chips like energy conglomerate Reliance Industries, top software services exporter Tata Consultancy Services, leading mobile phone operator Bharti Airtel, carmaker Maruti Suzuki and engineering and construction giant Larsen & Toubro.

There has been a Sharia-based ETF in operation since 2007 in India, and also many Islamic-compliant brokerage houses like Parsoli and Idafa, but this is yet to pick up in a big way.

“The BSE has the largest number of Sharia-compliant companies in the world, more than the whole of the Middle East and Pakistan,” said Sharique Nisar, director of Taqwaa Advisory and Sharia Investment Solutions or TASIS which corroborated with the BSE on the index.

Missed opportunity

If the Sharia 50 had been launched in early 2008, it would have given better returns than the top-30 Sensex and the wider BSE-500 index, according to the BSE.

“The Sharia 50 has outperformed the Sensex by nearly 25 per cent and the BSE 500 by over 30 per cent over our back-test horizon (beginning 1-1-2008),” the exchange said. “Over this period, annualised volatility for the Sharia 50 was also less than both Sensex and the BSE 500 by nearly five per centage points.”

The 30-share Sensex, India’s mostly widely tracked index, was one of the world’s best performers in 2010, rising 17.4 per cent. India’s $1.3 trillion economy, Asia’s third-largest after China and Japan, is expanding at around 9 per cent annually and the government aims to push growth to double digits in the years ahead.

With about three-quarters of India’s 1.2 billion people below the age of 25 years, the country is destined to reap a demographic dividend as the productive younger population boosts consumer spending and pays for massive investment in large infrastructure projects such as highways, power, airports, flyovers and townships.

“The long-term outlook for the Indian economy is very bullish and the Sharia-compliant index will be a huge booster to attract a new class of investors,” said Biju Dominic, who advises retail clients in Mumbai.

He said pension funds from Saudi Arabia to the UAE, and from Malaysia to Indonesia, that have strict religious rules for investment could use the index to pour funds into socially responsible sectors in a region which is growing rapidly.

The BSE’s Sharia 50 comes four years after the Standard & Poor’s launched similar indices elsewhere, spawning a series of ETFs and mutual funds.

S&P had also partnered the National Stock Exchange, India’s biggest bourse and the main market for derivatives, to launch S&P CNX Nifty Sharia and S&P CNX 500 Sharia index. However, only one ETF — the Sharia BeES by Benchmark Mutual Fund — based on the CNX Nifty Sharia has been launched so far.

New investor class

Still, with India’s pace of economic expansion expected to overtake China’s growth rate in the coming years global investors would increasingly look to grab a slice of the market With more Sharia-compliant benchmarks and greater awareness, the prospect for attracting a new class of investors is upbeat.

Madhu Kannan, managing director and chief executive of the BSE, said the Sharia 50 index could give Islamic and other socially responsible investors from the Gulf, Europe and South-east Asia another means to access the Indian market.

Foreign portfolio investment in Indian companies has exceeded $1 trillion since the market was opened up in 1993, and there is another $18 billion in debt instruments.

Domestic investors, especially from the Muslim community, will also find the index handy.

“The creation of the index will help promote financial inclusion of the Muslim population in India and attract investment flows from international funds that must adhere to Sharia norms,” the BSE said.

Oil and gas companies account for almost 30 per cent of the market capitalization stocks in the Sharia 50, followed by capital goods at 19.4 per cent and information technologies at nearly 12 per cent.

The BSE, which started operations in 1875, says the Sharia 50 is the first Indian index to cap the weighting of stocks at eight per cent, which increases diversification and makes related products more attractive to global investors.

Some Sharia-compliant schemes in India

Ambit QInvest
Ambit Capital in collaboration with QInvest, Qatar’s leading investment bank, launched a $150 million open-ended Ambit QInvest India Fund in 2010, which has been touted as the largest Sharia-compliant India fund.

“The fund’s performance in the last three months since inception is 10.4 per cent,” QInvest’s Chief Executive Shahzad Shahbaz said in December. “The Indian equity market provides investors with a highly attractive opportunity to invest in a diversified range of Sharia-compliant equities. The market capitalisation of Sharia-compliant companies within the Nifty stock market index is nearly 60 per cent.”

QInvest had acquired a 25 per cent holding in Ambit Corporate Finance last February for Rs2.5 billion, and recently bought 28 per cent stake in Asian Business Exhibition and Conferences, India’s leading exhibitions and conferences organiser.

Sharia BeES
Sharia BeES, an exchange traded fund, was launched by Benchmark Mutual Fund more than two years ago and mimics the S&P CNX Nifty Sharia Index, which comprises companies in energy, software services, automobiles, engineering, metals, health care, construction, telecom and consumer goods. The passively-managed fund has assets under management of Rs9 million, with annual returns of 10.4 per cent. Minimum investment is Rs10,000.

Taurus Ethical
Taurus Mutual Fund collected about Rs50 million for its Sharia-compliant Taurus Ethical Fund when it was launched in February 2009. It invests in the companies that are part of the S&P CNX 500, with a preference to more mid-cap firms. Being an actively managed diversified fund, it has outperformed the benchmark with annual returns of 23.8 per cent. It has assets worth Rs254 million.

Brokerages
Parsoli Corporation is one of the few Islamic finance firms in India to be involved in equity brokerage and Sharia compliant investment activities. Others include Hidaaya Consultancy Services, Bearys Amanah and Idafa Investments.

Source: http://gulfnews.com/business/markets/india-woos-islamic-funds-1.746388

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Bombay Stock Exchange launches Islamic index

Bombay Stock Exchange launches Islamic index

Stock Exchange

The Bombay Stock Exchange (BSE) in the Indian city of Mumbai has launched a new index which consists of companies that meet the Islamic legal code.

The Tasis Shariah 50 was formed using guidelines from an Indian Shariah advisory board.

Studies have found that most Muslims in India are excluded from the country’s formal financial sector.

That is because Islamic law does not allow investment in companies that sell goods like alcohol, tobacco or weapons.

Neither does it allow investment in companies that derive significant profit from interest.

The index is intended to be the basis for other Shariah-compliant financial products.

‘Come and invest’

BSE Managing Director and Chief Executive Madhu Kannan said that the new index would attract Islamic and other "socially responsible" investors both in India and overseas.

"This index will create increased awareness of financial investments among the masses and help enhance financial inclusion," he said in a statement.

Companies included in the index have been screened by Tasis, which is based in Mumbai and whose board members include Islamic scholars and legal experts.

"Before anyone can attract investors, we need to put in place institutional infrastructure, and having an index to track Shariah-compliant stock is important," MH Khatkhatay, senior adviser to Tasis, told the Reuters news agency.

"If you have an ETF (exchange traded fund), for example, you need an index, or if overseas investors want to invest in Shariah index in India, this is an invitation for people to come and invest."

Tasis said the index would "unlock the potential for Sharia investments in India".

"The BSE has the largest number of listed Sharia-compliant stocks in the world," said Shariq Nisar, director of research and operations at Tasis.

"All Muslim countries of the Middle East and Pakistan put together do not have as many listed Sharia-compliant stocks as are available on the BSE."

Stocks will be reviewed every month to ensure they continue to meet the criteria – any which do not will be removed, officials say.

Source: http://www.bbc.co.uk/news/world-south-asia-12083190

Indian Centre for Islamic Finance (ICIF) urges introduction of Islamic banking in India

Indian Centre for Islamic Finance (ICIF) urges introduction of Islamic banking in India

Gateway_of_India

The Indian Centre for Islamic Finance (ICIF) has made out a strong case before Prime Minister’s Economic Advisory Council member V. S. Vyas for introducing interest-free banking in the country at the earliest to ensure “inclusive growth with innovation” in accordance with the recommendations of the Planning Commission’s Raghuram Rajan Committee.

An ICIF delegation from New Delhi, led by its general secretary H. Abdur Raqeeb, met Prof. Vyas at Yojana Bhavan here over the weekend to impress upon him the need for creating a framework to provide benefits of banking products and services to the marginalised sections of society, when “serious questions” were being raised about the utility of the micro-finance model.

Prof. Vyas, who is also deputy chairperson of the Rajasthan Planning Board, had observed at a dialogue on “Ethical issues in planning and management” here recently that Islamic economic principles for equitable distribution of wealth to the poor and the needy could provide answers to some of the challenges of modern economy.

Spurred by Prof. Vyas’ remarks that the Islamic financial system could be further explored, the ICIF delegation made a detailed presentation before him while suggesting introduction of a pilot project with the public, private and foreign banks operating in India to open an “interest-free Islamic banking window” within the existing Indian banking regulations in Mumbai for one year before deciding the future course of action.

Mr. Abdur Raqeeb pointed out that certain faiths, including Islam, prohibit use of interest-based financial instruments and perceive them as promoting usury and exploitation. Since a large number of people belonging to these communities are in the economically disadvantaged strata of society, they are unable to access banking products and benefit from the country’s economic growth.

Financial reforms

A high-level committee on financial sector reforms under Dr. Raghuram Rajan appointed by the Planning Commission in 2008 had stated that the delivery of interest-free finance on a larger scale, including through banking system, would be “in consonance with the objectives of inclusion and growth through innovation”. Prior to this, the Reserve Bank of India constituted a working group in 2006 to examine the instruments used in Islamic banking. Mr. Abdur Raqeeb told The Hindu here that he had requested Prof. Vyas to prevail upon Prime Minister Manmohan Singh, Union Finance Ministry and RBI to accept the high-level committee’s recommendations in the wake of setbacks in the micro-finance institutions as well as the RBI’s recent efforts for funding new rural branches through a pilot project in the north-east region receiving a “serious jolt”.

Significantly, the Prime Minister had recently asked the RBI to look into the Malaysian model of Islamic banking during his visit to Kuala Lumpur. Dr. Singh had observed that he would recommend to the RBI to look at “what is happening in Malaysia in this regard” while referring to the demands for experimenting with interest-free banking.

The ICIF delegation presented to Prof. Vyas some documents on the “financial tsunami of 2008” and the Islamic perspective of why it happened as well as the remedies. Mr. Abdur Raqeeb said the Islamic finance instruments had the potential to provide satisfactory services to the daily wage earners, farmers and below poverty line families.

“Islamic finance can cater to the needs of the growing population in the cities and come up with innovative products in the sectors such as insurance, mutual fund, capital market, trading loans, real estate and small infrastructure development projects,” said the ICIF general secretary, adding that huge investment flows from Muslim countries in Middle East and East Asia were waiting for the Islamic banking doors to be opened in India.

While emphasising that financial exclusion of large segments of population was adversely affecting socio-economic and educational uplift of the masses, Mr. Abdur Raqeeb called upon Prof. Vyas to join the efforts for providing a level playing field to interest-free banking along with the conventional banking model.

The ICIF also requested Prof. Vyasto look into the Maharashtra Government’s recent pact with Bahrain-based Gulf Finance House, which will be investing 10 billion U.S. dollars over the next seven years for setting up an integrated economic development zone near Mumbai. A similar venture in Rajasthan would immensely benefit the people of the State.

Islamic bonds

A reference to the Kerala Government’s initiative for establishing an Islamic finance model, which has since been challenged by Janata Party leader Subramaniam Swamy in the High Court, was also made at the meeting.

The Kerala Government is reportedly looking at Islamic bonds as another form of venture capital to build airports, introduce high-speed trains and develop expressways in future.

Source: http://hindu.com/2010/12/14/stories/2010121460600300.htm

QInvest, Ambit launch Shariah-compliant Indian fund

QInvest, Ambit launch Shariah-compliant Indian fund

Gateway_of_India

As a continued sign of its clients’ appetite, QInvest, Qatar’s leading Investment Bank, in collaboration with India’s premier financial services partner, Ambit, announced the launch of the Ambit QInvest India Fund, an open ended Shariah-compliant Indian Equities Fund.

The fund is the region’s first and India’s largest Shariah-compliant equity fund with an investment strategy that will combine dynamic equity allocation to generate returns.

The Ambit QInvest India Fund further strengthens QInvest’s position as the leading investment bank in developing Shariah-compliant innovative solutions to satisfy its Qatari and regional clients’ appetite towards investing in growth markets.

Leveraging Ambit’s expertise and consistent track record, the fund offers an attractive entry point for investors to leverage the potential for long term price appreciation underpinned by strong growth drivers in the Indian market. QInvest conviction in this project and the Indian market is further demonstrated by seeding capital into the product.

Commenting on this launch, QInvest’s CEO, Shahzad Shahbaz, said: “The Indian equity market provides investors with a highly attractive opportunity to invest in a diversified range of Shariah-compliant equities. The market capitalisation of Shariah-compliant companies within the Nifty, stock market index, is nearly 60 percent”.

“The Fund’s performance in the last three months, since inception, is 10.4 percent” Shahbaz added.

QInvest and Ambit recently organised a professional workshop entitled “Invest in India” at the Four Seasons hotel in Doha, Qatar. Attended by a group of senior bankers and institutional investors, the workshop addressed the current status of the Indian equity market that offers distinct advantages for investors seeking to leverage the fast growing Indian market and an opportunity to diversify their portfolios.

Over 6,000 listed companies boasting in excess of $1.3 trillion market capitalisation has enabled the Indian stock market to be ranked as one of the best performance among emerging markets.  And while China has outperformed on economic growth, India has provided consistent returns to stock market investors in the last 5 years in overall terms.

“Key Shariah-compliant growth sectors in the Indian economy are likely to witness significant activity including power, roads, automotive, pharmaceutical and consumer staple and non-staple products.” Said Andrew Holland, Equities CEO at India’s Ambit Capital Pvt Ltd.

With many global pension funds increasing their India weightage, a re-rating of the market is probably warranted. “We see the Sensex, Indian stock market index, at 23,000 by March 2011,” added Holland.

“The Indian economy should see robust growth and given that valuations remain attractive, investors are looking to reallocate capital away from more developed equity markets, where their confidence is lower”.

To further strengthen its access to the Indian market, QInvest made an important strategic investment by taking a stake of 25 percent in India’s Investment Bank, Ambit Corporate Finance Pvt Ltd, giving clients access to this high growth market in which many investors have expressed keen interest.

Just recently, QInvest has acquired a 28 percent stake in Asian Business Exhibition & Conferences Ltd (ABECL), India’s leading exhibitions and conferences organizer, to further expand ABECL’s operations within India and internationally.

Source: http://www.thepeninsulaqatar.com/business-views/135058-qinvest-ambit-launch-shariah-compliant-indian-fund.html

Plan to set up Islamic banking institutions in Kerala

Plan to set up Islamic banking institutions in Kerala

kerala

A proposal to set up financial institutions based on the principles of Islamic banking to attract interest free deposits from

Non Resident Keralites is being considered by the Kerala government, finance minister T M Thomas Isaac said.

Speaking to reporters on the sidelines of a function here,Isaac said the proposal was mooted by the industries department to attract investment to the state.

The consultant appointed to study the feasibility of such financial institutions in the state has already given a go ahead to the proposal, he said.

"The banking institutions will not give interest to depositors and will not take interest from borrowers," he said.

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India’s first Shariah-compliant mutual fund collects 50 million rupees

India’s first Shariah-compliant mutual fund collects 50 million rupees

Gateway_of_India

India’s Taurus Asset Management has collected about 50 million rupees in the country’s first actively managed sharia-compliant equity mutual fund it launched in February, chief executive Waqar Naqvi said on Wednesday.

"Around 5 crores… not bad given the fact that even very large fund houses collected some 2 crores or 3 crores," Naqvi said, referring to the mop-up.

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Keeping the faith: Shariah-compliant services in India

Express Money: Keeping the faith: Shariah-compliant services in India

Shariah-compliant services are emerging as the next hot trend in the financial space in India. Already quite a rage in the Middle East, these services are picking up pace in India as well. In the first week of this month, Reliance Money announced the launch of its Shariah-compliant Portfolio Management Services (PMS) in partnership with Parsoli Corporation.

In addition, a number of mutual fund houses like Reliance Mutual Fund, Way2Wealth, Edelweiss and UTI Asset Management also plan to launch Shariah-compliant services in the coming months.

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