Over the last ten years Islamic finance has grown quite impressively. With the growth in Islamic finance the need for shariah compliant financial products have also increased very much.

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However, Islamic capital markets in various Muslim countries are still quite underdeveloped. In these circumstances there have emerged a number of Indices developed by Dow Jones, FTSE and others to track shariah compliant stocks from the world over.

This paper using the shariah screening norms as adopted by the Dow Jones show that Indian capital market provides tremendous shariah compliant investment opportunities as compared to a number of Islamic countries.

1.0 Introduction

Slowly the world’s economic centre of gravity is shifting away from the established, wealthy economies of Europe, Japan, and North America to the emerging economies like China, India, and South East Asia.

China and India in particular are projected to become the two largest economies of the world in the next fifty years. China riding high on its manufacturing ability, has recorded tremendous economic growth in the recent past.

But as far as foreign investments are concerned, it is still looked at with suspicion, mainly for its political setup and the economic model. On the other hand India the world’s largest democracy, offers some very clear advantages.

India is one of the fastest-growing large economies in the world. With a population of over 1.3 billion, with huge human and natural resources, and with costs that are at the very low end of the global average, India represents economic opportunities on a massive scale.

Its legal framework which protects foreign investments is one of the best in the region. The economy offers an abundance of technical and managerial talent, with international experience. And most importantly, India has a demographic advantage that will see its working age population continue to grow in the next couple of decades.

Islamic finance, on the other hand is another great success story of modern times. Emerging modestly from a small town of Egypt, less than four decades ago, Islamic finance has already reached critical mass. Those busy mocking at it not long ago have now started practicing it. Everywhere Islamic financial institutions are now praised and awarded for their excellence and ethical concerns. But the real journey has just begun.

In these times Islamic finance needs to keep its feet firmly on the ground. Keeping itself informed with a high level of concern for equity and justice, differentiating between the lawful (halal) and the prohibited (haram) and a sense of responsibility towards the weaker sections, Islamic finance needs to continuously look at opportunities beyond the land of oil and gas. That India is one such land of opportunity is the purpose of this paper.

India started liberalizing its economy in 1991, when the current Prime Minister, Dr Manmohan Singh took over the charge of Finance Ministry. Under his direction the Central government embarked on large-scale economic reforms.

India the world’s largest democracy possesses political liberty, plural and mostly secular society and institutional framework that is best suited to a global economy. India’s strength lies in bottom-up potential. Companies are well run and valuations are reasonable given current earnings’ growth. The country has an enormous consumer market and relatively inexpensive labour force.

Since economic reforms the country has grown at over 5 percent, and now expanding at close to 8 percent. Compare that to European growth of less than 2 percent on a 10-year average, and U.S. growth of around 3 percent. India is predicted to be one of the world’s two biggest economies by mid-century.


2.0 Corporate Performance

Corporate India has been consistently showing good operational results. This, along with strong macroeconomic fundamentals, growing industrial and service sectors provides great potential for investment in the Indian economy.

Between March 2000 and December 2005, total sales of corporate India have grown from US$ 259 billion to US$ 488 billion, an impressive growth of 88 percent. In the current financial year between March to December sales have registered a growth of over 26 percent.

Profit after tax (RAT) has jumped almost four times during the same period. Net worth of corporate India during the period of March 2000 to December 2005 has grown over US$ 100 billion, whereas, total assets have registered a growth of 85 percent during the same period.




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