Shariah Compliant Stocks in India - A Viable and Ethical Investment Vehicle

Abstract

The Shariah compliant stocks are tradable stocks which are adhere the Shariah Investment principles. Shariah investment has been growing gradually in India for the last two decades. This work empirically examined the risk and return behavior of the selected Shariah Compliant Stocks and benchmark indices during the period from 2nd January 2007 to 29th July 2011. The closing prices of the selected Shariah Compliant stocks and closing value of the Nifty Shariah index, Nifty index and BSE Sensex index were collected from the CMIE Prowess, NSE and BSE websites. The study objectives were examined by employing the t-test, CAPM to estimate beta, and correlation Matrix. The study reveals that the average returns of the Shariah Compliant Stocks and benchmark indices were almost similar. In the same line, average return of the Shariah index and Common index in India during the study period were also highly resembled each other. With all Shariah principles, the Shariah index provides same return as common index provide. Hence, the study reveals that the equity based Shariah Compliant investment is a viable and ethical investment avenue.

Keywords: Shariah Index, Islamic investment, risk and return, Islamic finance, Nifty Shariah, behavior of the stocks