BSE, formerly known as the Bombay Stock Exchange, and S&P Dow Jones Indices, a leading index provider, have announced the launch of the S&P BSE 500 Shariah Index.
The new index is the first to be launched out of a strategic partnership formed between BSE and S&P Dow Jones Indices.
The index measures the performance of all Shariah-compliant stocks within the broad-based S&P BSE 500 Index.
The parent S&P BSE 500 consists of 500 of the largest, most liquid Indian stocks trading at the BSE. The S&P BSE 500 represents nearly 93% of the total market capitalisation on the BSE and covers all 20 major industries of the economy.
The new index is the first to be launched out of a strategic partnership formed between the two companies in February of this year.
The partnership brings together BSE’s closely watched India index suite, which includes the SENSEX, with S&P Dow Jones Indices’ 115 years of experience in publishing global benchmarks, including the iconic S&P 500 Index.
Ashishkumar Chauhan, MD & CEO of BSE, said: “We are delighted to see the launch of the first joint product to come out of the partnership between BSE and S&P Dow Jones Indices. The product will serve an important role in measuring this segment of the market.”
Alka Banerjee, Managing Director of Global Equity Indices at S&P Dow Jones Indices, added: “This is an exciting landmark moment for our partnership, which aims to provide market participants with the relevant and transparent index solutions needed to gauge the performance of various market sectors while facilitating access to the world’s financial markets.”
Shariah is Islamic canonical law, which observant Muslims adhere to in their daily lives. Shariah has certain strictures regarding finance and commercial activities permitted for Muslims.
S&P Dow Jones Indices has contracted Ratings Intelligence to provide the Shariah screens and to filter the stocks. Ratings Intelligence is a London/Kuwait-based consulting company specialising in solutions for the global Islamic investment market.
The first level of Shariah screens excludes companies operating in non-compliant areas, such as alcohol, tobacco, pork, pornography, gambling, cloning, banking and finance (except specific Shariah-compliant institutions) and advertising and media (except certain news and sport segments).
After removing companies with non-compliant business activities, the rest of the companies are examined for compliance in financial ratios, as certain ratios may violate compliance measurements. Three areas of focus are leverage, cash, and the share of revenues derived from non-compliant activities.
The index has been designed to act as a benchmark for actively managed funds and as an underlying for index-linked products such as exchange-traded funds (ETFs) and structured products.
Currently, no Shariah-compliant ETF dedicated to Indian stocks exists. However, investors could consider the iShares MSCI Emerging Markets Islamic ETF (ISEM), which is listed on the London Stock Exchange, Deutsche Börse, NYSE Euronext Amsterdam and NYSE Euronext Paris.
This fund provides exposure to Shariah-compliant companies across emerging markets, including a 4.66% weight in Indian stocks. Indian names held include Reliance Industries, Doctor Reddy’s Laboratories, Sterlite Industries and Wipro.