Indian economy with a GDP of US 1.25 trillion is the twelfth largest, whereas in terms of purchasing power parity (PPP) it is the third largest in the world. The last four years have seen real GDP rise to a cumulative 33 per cent, with impressive increases of 8.5 in 2003/04, 7.5 in 2004/05, 8.4 in 2005/06 and 9.4 during the fiscal year 20062007.
Investment opportunities in India are today perhaps at a peak. Strong population growth, a large pool of highly skilled workers, greater integration with the world economy and increasing domestic and foreign investment are expected to drive Indias real GDP by 6 p.a. over the next 1015 years. Rising high on its natural strengths, the country offers investment opportunities in excess of 500 billion in diverse sectors over the next five years.
Putting strong faith in Indian economic increasing number of gulf investors have started turning to India for their investment needs. This is proven from the fact that during the last six months, more than 10 billion USD investments have been announced by major Islamic finance players in the gulf. In 2006, India had received another 2 billion USD Islamic financing. Following table gives a list of recent Islamic finance deals India has done so far.
Above figures are not inclusive of the funds that came through Foreign Institutional Investors (FII) channel for investment in the Indian stock market. It is reported that as many as 40 registered FIIs have their origin from the Middle East. Most of them have registered recently.
With the rise of Islamic investments, domestic Islamic finance players have started playing aggressively. A few examples are worth mentioning here, Bombay based shariah advisory firm Tasis is in an advanced stage of finalising an agreement with a UAE based shariah advisory firm for bringing many Islamic financing solutions to Indian corporates. Bombay based brokerage firm Idafa has started venturing outside its stronghold. Now the company is spreading its activities to other Indian cities such as Hyderabad, Chennai and Bangalore. Bangalore based Bearys group which also has the credit of receiving Indias first shariah compliant realty fund has established an Islamic finance company, which is focusing on foreign investments in real estate. Ahmedabad based Parsoli Corporation is reported to be in arrangement with Delhi based Taurus Mutual Fund for launching an Islamic mutual fund.
Stock Market Opportunities
To assess the extent of Islamic investment opportunities on the stock market, one has to look at the availability of stocks which conform to the norms stipulated by the Islamic shariah. When we talk about shariah compatible stocks, at least three important criteria to bear in mind are (i) business of the company, (ii) nature of contract under which the invested capital of the enterprise is mobilised, and (iii) shariah compatibility of the shares of the company for purposes of trading.
A study of Indian stock markets was conducted to find the stocks that comply with shariah norms. Over 60 market capital of both the stocks exchanges i.e. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) were found to be shariah compliant. Main findings of the study are highlighted in the following tables.
Sector wise, computer software tops the list of shariah compliant stocks at NSE, both in terms of the number of stocks and also on the market cap. Drugs and Pharmacy comes second in terms of number of qualifying stocks with 35 companies qualifying the shariah norms. In terms of Market cap, they rank fourth. Infrastructure and real estate ranks third in position both in terms of the number of stocks qualifying (27) and in market cap. Only four companies engaged in telephony businesses qualified the norms, but their aggregate market cap takes them to the second rank in terms of Market cap. Other sectors that make significant contribution to the qualifying stocks are finished steel, cement and cosmetics.
