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Published On:21 July 2011
Posted by Indian Muslim Observer

INTERVIEW: Dr. M. Y. Khan & Shivkumar Goel on India’s First Shariah PMS, ‘Bonanza-Pragmatic Shariah Fund’

[Islamic Finance is fast catching up peoples’ fancy around the world. This great financial model, if implemented in right earnest and in letter and spirit, is bound to bring long-term benefits for the humankind. We are pleased to publish an Interview sent to us by Islami Tijara - India's only magazine on Islamic Finance (http://www.islamitijara.com), for the benefits of our readers. – Danish Ahmad Khan, Founder-Executive Editor, IndianMuslimObserver.com]


Unveiling India’s Premier Shariah Portfolio Management services (PMS)


Bonanza Portfolio Ltd. in association of Pragmatic Wealth Management Pvt. Ltd have launched the India’s First Shariah PMS, ‘Bonanza-Pragmatic Shariah Fund’. Islami Tijara interviewed Dr. M. Y. Khan, Chairman Pragmatic Wealth Management Pvt. Ltd. and Mr. Shivkumar Goel, Director of Bonanza Portfolio Ltd to know about the details of the product.


Dr. Khan worked for Reserve Bank of India (RBI) for thirty years and rose to the position of senior Director (Grade- E). He was also visiting officer of International Monterey Funds (IMF), Federal Reserve Bank- New York, Bank of England and Bundes Bank Germany. In the year 1996 he joined Securities exchange board of India (SEBI), as economic advisor on deputation and carries vast experience in capital markets and he has published more than 150 papers in reputed journal.


Mr. Shivkumar Goel, is the Founder Director of Bonanza. He has been handling IT & risk initiatives since inception. Formerly, designated as the CEO of SRF Finance Limited, Delhi; Mr. Shivkumar Goel had also spearheaded the IT committee of the DELHI Stock Exchange. A CA & CS with more than 30 years of experience, he recently was nominated as the executive committee member of Depository Participants Association of India. He is currently a functional member with Association of National Exchanges Members of India NR.


Q. How do you react on Islamic equity stock market?


Dr. M. Y. Khan
Dr. M.Y. Khan: There are very few stock markets that are functioning on the basis of Islamic Shariah. However Islamic stock market and other intermediaries associated with such markets have to function on the basis of Shariah principles, such as prohibition of interest in financing their business like broking, underwriting in case of IPOs, merchant banking, private equity financing, etc. Other principles are such as not to trade in the companies with the business of alcohol, pork related products and non-halal food production, and interest based finance companies like banks and NBFC etc. Islam prohibits investments in entertainment (Music, Gambling etc) also.


Islamic investment is superior to other investment since the trading in the securities do not involve insider trading, manipulating the market and any kind of monopolization of the market. Shariah principles on a global scale have been catalyzing the flow of savings by Muslims to productive industries. As a matter of fact, the Islamic Shariah can create a wide, fair and transparent stocks market even in case of IPOs.


Q. In our country very little work has been done on Islamic investment or Islamic finance. What prompted you to launch Shariah PMS?


Dr. M. Y. Khan: I agree that there has not been much done in the field of Islamic Investment and Finance. But the fact is that the Indian equity market offers incredible avenue for Shariah compliant investments. At present, it offers the best alternative, perhaps the only alternative to the Indian Muslim investors (Rabbul- Mal) who would like to invest their savings in Shariah manner rather than depositing their savings in the bank. The Indian equity market, with its enormous potential for growth, can compete favorably with global portfolio managers and attract high net worth individual investors. The domestic funds of Muslims are waiting to be invested in large magnitude. At present population of Muslims can be estimated as much as 160 Million. Thus there is considerable scope to get a large number of Muslim investors in India. Having considered Islamic Investment as potential market, we decided to launch a Shariah fund as “Bonanza-Pragmatic Shariah Fund”.


Q. What is your fund management strategy?


Mr. Goel: Stock selection has been done from the top 251 Shariah complaint companies selected by Pragmatic Wealth Management. These 251 stocks covers approximately sixty percent of the market capitalization of the 3500 liquid and well traded companies listed on Bombay Stock Exchange. The stocks selected have been certified by Shariah Board. These 251 stocks are further analyzed on fundamental and technical basis. As regards investment strategy, investment in each Sector will not be more than 25 percent and each stock not more than 10 percent of the funds. Investment will not be done in any debt instruments. Drop down policies are well defined.


Q. Can you cite some benefits of Shariah PMS being launched?


Dr. M. Y. Khan: Our Shariah PMS is an opportunity for Muslim investors to employ their savings in superior companies with the angle of social welfare and not making heavy interest payment compared to other companies. Thus, it is because our sample of companies has been designed to eliminate those companies which can produce socially unwanted interest. As such their profits will be sounder than the profits of interest paying companies and they would be more fruitful to augment the wealth of investors. However, equity market needs several measures such as to minimizing the risk, correct accounting standards and compliance of disciplines of the stock market.


Q. Have you done any tie-up or advisory arrangements?


Mr. Goel: We have a strategic tie-up with Pragmatic Wealth Management Pvt. Ltd. (PWM) for stock advisory services, research and marketing. The fund will be managed by Mr. Imtiaz Merchant who has considerable experience of capital markets, good track record and expertise in Islamic Investment. PWM is an wealth Management Advisory company with clear focus on Shariah Compliant Investments. The Chairman of PWM is Dr. M. Y. Khan who is a former. Sr. Officer of RBI and ex- economic advisor to SEBI.


Q. How much fund you expect and will you market the Shariah fund abroad as well?


Mr. Goel: Initially we are looking at an asset base of Rs 100 crore in India and would soon embark on marketing of the product in the Middle- East and Europe as well. We are getting good enquiries for the same. We already have a branch in Dubai and we expect to open more branches in the Middle East countries. The figures can double in three years time.


Q. Shariah restricts investment in many industries and has prescribed debt ratios and interest income rules to be followed. Do you think there are enough Shariah compliant companies in Indian stock market? Can you share your comments on these aspects?


Dr. M. Y. Khan: Selection of Shariah stocks is based on specific screening norms as per the Islamic principles. Investment in the companies with the business of alcohol, pork related products and non-halal food production, interest based finance companies like banks and NBFC etc is not permitted. Islam prohibits entertainment (Music, Gambling etc) also. Once companies are selected by using the foregoing principles, the same companies are further screened on the basis of level of debt, cash, and interest bearing securities and receivables which is used separately as a ratio of average market capitalization which should not exceed 33%. If impure income and interest exceed 5 percent of total their income, investment should not be made in such companies.


The Pragmatic Wealth Management Pvt. Ltd. has screened nearly 5000 companies listed on Bombay stock exchange and sample of 917 companies on the basis of Shariah indicators as specified above was prepared. This sample accounts for 60 percent of market capitalization of listed companies on Mumbai Stock Exchange and out of this we have further selected 251 companies spread in nine sectors. The Indian stock market thus provides big enough universe of large, mid and small Shariah compliant companies for investment.


Q. What arrangement you have done for Shariah Board Certification or who are your Shariah advisors?


Shivkumar Goel
Mr. Goel: We have an arrangement with Pragmatic Wealth Management P ltd. They have their Shariah committee called Islamic Investment and Finance Board (IIFB) with eminent Islamic scholars. PWM is a specialist in Shariah investment and it is their responsibility under our strategic tie up to procure Shariah certificate and attend to our client queries on Shariah matters. The Shariah committee will do the supervision of the funds to check its Shariah validity on daily basis and they will issue certificate periodically.


Q. Can you brief the marketing strategy of the fund?


Mr. Goel: Consumer marketing of the fund would be similar to the way other financial products are sold. We emphasize safety, reliability and performance. In addition, we will inform the consumers on their diversity of choices, ease of use and low costs. We are trying to access all segments of the population and use broad marketing platforms such as television, newspapers and the internet. We are especially focusing on financially oriented media such as television channels, financial market magazines and web portal like moneycontrol.com, Value notes, bonanzaonline.com and islamitijara.com. Also we will promote the product through our monthly newsletter "Bonanza Times" as well as through the monthly Islamic Finance Magazine called 'Islami Tijara'.


Q. Who are the target investors people of Shariah PMS being launched by Bonanza and PWM?


Mr. Goel: Basically we are targeting the Muslim community in India and abroad who are averse to keeping money in bank deposits would like to invest their savings in this product, the Shariah-PMS product will also be sold to non Muslims too who desire to invest in Shariah compliant companies.


Q. What will be your benchmark to judge the performance of your portfolio?


Mr. Goel: We will benchmark our Shariah-PMS with BSE Sensex, NSE Nifty, S&P Shariah 500 and S&P Shariah indices.


Q. Will your product be sold to non Muslims as well?


Mr. Goel: Yes, we will target the investors' community of all faith and religion. This fund is equally available to Muslims and non-Muslims. Since Shariah PMS is a faith-based investment we expect more Muslims to participate. We anticipate 25 to 30 percent non Muslims subscribing to this product.


Q. You are pioneering the Shariah PMS in this country and naturally you will have a first mover advantage, what kind of competition do you see in future?


Mr. Goel: Islamic finance is at nascent stage in India, with huge Muslim population there are hardly few Islamic investment products available. India is a huge market and we expect other asset management companies to enter in the Shariah fund market in near future. Completion and awareness will bring more business.


Q. What is your assessment or outlook for stock market for next few years?


Dr. M. Y. Khan: According to our assessment India offers a very positive scope from the angle of economic growth and domestic savings. India's GDP growth is likely to be in the range of 8 to 9 percent and domestic savings may rise to 37 percent of GDP during the next 5 year period. India's stock market is very viable and healthy from the investment and trading activity point of view. We have a good compliment of other intermediaries in stock market, so there is a very good scope for Islamic investment.


Q. Have you done any market survey what response did you get for this product?


Mr. Goel: Our business development and marketing team has done an exhaustive survey and found the respond to be very positive, particularly from South India and Western India. More awareness campaign in form of conferences and workshop is required at national level. We have planned to conduct conferences in various part of the country.


Q. What is the scope and potential of Islamic investment in India?


Mr. Goel: India is home to over 160 million Muslims, which is a large number. With the economic growth Muslim population of India has sizeable income at their disposal. The middle class Muslim is rising. At present they don’t have an alternate and suitable investment product from Shariah point of view and their participation in equity market is very low. The launch of this Shariah PMS will open doors for investments in equity markets in the Shariah way. It will give them a much needed alternate to bank fixed deposit and other non Shariah investment. Hence this product has good scope in equity market.


Q. Since activities in stock market are complicated, is there any arrangement or efforts to set up such institutions?


Dr. M. Y. Khan: Yes players in the stock market have to be highly skilled and expert in their work. At present there are a very few institutions which are offering training relating to activities of stock market. As regards Islamic Finance, there are only one or two institutions which are offering courses on Islamic banking but there is no institution which offers training in capital market functions. We in PWM are making some efforts to solve this issue.


Q. With so much uncertainty in the stock market, do you think this is the right time to launch this product?


Mr. Goel: Yes, the markets are fairly valued though some more correction and downside is not ruled out. With an expected 8% plus GDP growth, India offers a good investment opportunity for long term investors. This is a good time to invest in equity markets hence I think the timing for the launch is right.


Q. How Islamic finance or services are helpful for economic development faster than other financial institution?


Dr. M. Y. Khan: Economic development needs a number of factors like finance, plants and machinery, raw materials, trained and skilled working force, good planning, managerial skills, etc. As regards finance, Islamic institution's finance is linked with physical asset creation so it leads to direct capital formation. As delivery of goods is important to complete the transaction in Islamic finance, there is a less scope of diversion of funds and creation of black money. Naturally the economy which adopts Islamic financing, can achieve higher economic growth provided all above cited factors are favourable.


Q: Islamic funds were less affected by the global recession, do you think the same will hold true Shariah PMS as well in the market?


Mr. Goel: It has been observed that the in the economic downturn Islamic investment tends to perform better because of its strict screening norms followed as interest based debt is concern. Stock of companies with high leverage (debt) is not part of our investment. It has been observed that the bottom-line of these high leveraged companies shrinks in economic slowdown. It has been also observed that Shariah complaint stocks shows resilience in down turn and we have observed that Shariah Compliant funds world over have performed better than the conventional funds, this is also reflected in the model portfolios constructed by our fund manager, Mr. Imtiaz Merchant.

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Posted by Indian Muslim Observer on July 21, 2011. Filed under , , , , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

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