Islamic funds likely to invest $1bn

61 per cent of Indian stocks Shari'ah compliant.

The Indian stock markets could see about $1 billion inflows through Shari'ah-compliant funds as Islamic investors are lured by the country's booming stock prices and rising economy.

The number of Shari'ah-compliant stocks in India is much higher than that of all Muslim countries put together, thus providing an immense scope for parking money, according to experts.

For instance, 61 per cent if the listed companies in India are Shari'ah-compliant, against 57 per cent in Malaysia, 51 per cent in Pakistan and a mere 6 per cent in Bahrain. In terms of the number of stocks, 283 of Bombay Stock Exchange's BSE-500 constituents, 214 BSE small caps, 39 NSE-50 (Nifty) and 23 Sensex stocks are Shari'ah-compliant.

"Islamic investments worth nearly $750 million have already been made in the capital market and infrastructure sector in the past few months. With second highest Muslim population in the world, the Indian market could easily attract $15-$20 billion through Islamic funds in few years down the line," said RK Gupta, managing director of Taurus Asset Management, which is awaiting regulatory approval for its Islamic Mutual Fund.

The fund hopes to collect Rs 500 crore through the Islamic fund.

About 170 million Muslims in India are not participating in the stock markets and missed out the three-year bull-run. India's bellwether Sensex has grown over 40 per cent annually in the last three years. The Sensex posted gains of 47 per cent in 2007.

"Muslims who are now ready to invest in the market, have started opening demat account with Shari'ah-compliant broking firms," he said.

"Though the Islamic investors turned to Islamic countries such as Malaysia, Pakistan and Indonesia, their economies provide limited opportunities and were too inadequate to absorb the huge investment potential of the Arab Islamic countries," Gupta said.

Zafar Sareshwala, managing director and COO of Parsoli Corporation, which pioneered Islamic banking in India, said investment from the Muslim community in the stock market is very negligible compared with the total population of the country.

Taurus Asset Management is launching the Islamic MF along with Parsoli Corporation. "Considering that 15 per cent of the country's total population is Muslims, the community's participation in the capital market has not been proportionate. Even if 1 per cent of them invest in the markets, the figures would be mind-boggling," Sareshwala said.

There would be 8-10 funds in the Indian markets in 2-3 years and these would attract at least Rs 3,000 crore from domestic sources alone, he added.

There is a growing interest, particularly in the Gulf and the West Asian countries, to invest in the Indian capital market.

"Although there are Islamic investment opportunities in the other countries, the Indian capital market is far more systematic and investor-friendly. Hence it can easily become the hub for such investments," he added.

The German-based Baader Service Bank, is coming in with a corpus amount of 30 million euros for its "First India Islamic Fund" in Germany. The fund is awaiting FII status from the Reserve Bank of India. The Shari'ah stocks would encompass sectors such as telecom, IT/ITES, automobile, FMCG and real estate.