Shariah Outperformance

One of the well-known Islamic Index in the world is the Dow Jones Islamic Market Index (DJIMI). The DJIMI’s unique shariah screening helped it to remove firms like Worldcom and Enron much before its actual collapse, from its constituent list. As soon as WorldCom was removed from DJIMI, the Islamic fund managers sold off WorldCom shares, when the share price was trading at $14. Six months later, the share has lost its entire value. This is a good example of how Islamic Indexes tend to outperform other indexes in the long run and protect investor wealth.

In order to analyze the Indian scenario, the BSE and TASIS conducted a back-test of the index from 1/1/2008. The relative performance of the BSE TASIS Shariah 50 index relative to the BSE-SENSEX, BSE 500, Nifty Shariah and CNX 500 Shariah is shown in the table below:

It can be observed that the fall of the index performances during the 2008 crisis was less for the shariah indexes when compared to the BSE500. Also, the TASIS50 Index was able to demonstrate a quicker recovery relatively.

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