WHAT ARE HALAL STOCKS?
Halal Stocks are stocks that complies with the Islamic law or Shariah. Islamic scholars have set a pre-defined rule to Classify the Stocks as Halal Stocks.
HOW STOCKS ARE CLASSIFIED AS HALAL?
There are 3 major screenings for a stock to be Classified as Halal.
1) Business Criteria
They are Certain activities that are prohibited, and income earned through those prohibited activities is considered as Haram.
Stocks has to generate less then 5% revenue from these prohibited activities, then the stock is considered as Halal stock.
PROHIBITED ACTIVITIES -:
Alcohol
Gambling
Pork Related Industry
Tobacco
Porn related industry
Interest related Companies
Stocks that have classified as Halal Stocks based on Business Criteria has to verified with Financial Criteria.
2) FINANCIAL CRITERIA:
Major Financial Classification for a Halal Stock is Debt to Equity ratio should be less then 33%.
Operating revenue from the Prohibited activities should be less then 5%.
Cash Reserves and investments to Equity ratio should be less then 33%.
If a stock has cleared both the Criteria’s (Business and Financial), to be Considered as Halal Stock. Investing in these Halal stocks is permissible.
Income Purification Ratio (IPR):
For full compliance with Shariah law, investors are required to purge the pro rata portion of interest income accrued on their holding of shares in a company.
HALAL STOCKS WITH HIGHEST MARKET CAPITALIZATION:
The below list of Halal stocks with highest market Capitalization in India.
INTRADAY IS PERMISSIBLE:
According to the Islamic Law, Intraday is permissible in Halal Stocks only for buy and sell later.
Short sell intraday is not acceptable as you are selling without the existence of Stock.
FUTURES AND OPTIONS:
Futures and options are not permissible as both are pure trading instruments.
Leverage Based Trading:
Leverage based trading is permissible in Halal Stocks only if Leverage provided is Interest free.
Shariah ETF’S:
Exchange traded Funds (ETF) are a group of collection of stocks traded as ETF’S.
NSE has introduced Shariah ETF’S, which comprises of Shariah Compliant Stocks.
CONCLUSION:
There are Multiple ways to invest in Shariah Compliant Stocks, ETF’S, Commodity instruments like Metals. There are Fund Houses which run Shariah compliant Mutual Funds, Pension Funds.
Mostly, Halal stocks are ESG Stocks and not only for specific religion but also for everyone looking for Fundamentally strong and Socio-economic Companies.