Shariah Banking

Market for Shariah grows surely and steadily

Over the last one year, Shariah-linked funds, which manage assets worth Rs139 crore, have outperformed the Sensex by a mile.

Globally, the $1.5 trillion market for Shariah-adherent products is expected to grow by around 20% annually. In India, 1,200 of the total 6,000 stocks are Shariah-compliant already. Over the last one year, Shariah-linked funds, which manage assets worth Rs139 crore, have outperformed the Sensex by a mile. Change is in the air, write Nitin Shrivastava and Sachin P Mampatta.

A cursory comparison of Islam-based investments and broad market performance (as symbolised by the Sensex gyrations) might suggest that Shariah-compliant funds have caught the fancy of Indian investors. Over the last one year, the 30-stock BSE Sensex has slipped 13.21%, while the 50-stock Shariah index has lost only 5.25%.

That is to say, Shariah-compliant investments — in deference to religious stipulations of Islam, they steer clear of shares of over-indebted companies and those whose business is related to gambling, pork, alcohol, tobacco and interest-earning lending — have performed better than the broader market. For instance, three mutual fund schemes that adhere to the Shariah-stipulated exclusions have outperformed the broader market by up to 10%. Currently, there are around 1,200 stocks of the total 6,000, including around 150 companies on the BSE 500, that are Shariah-compliant. 

In any weak macroeconomic scene like the current one, lenders like banks struggle. As Shariah funds avoid such institutions and prefer low-debt (hence fitter) companies anyway, they outperform the broader market.

For instance, banks and non-banking finance companies form nearly a fifth of the Rs62 lakh crore market capitalisation of the Indian equity market. But because they earn interest on loans, Shariah investors skip their shares. And they are much the better for that - after all, the BSE’s banking index has dropped 12.04% over...