KSE recomposes Shariah-compliant stock index

According to a notice on the KSE website, the five new companies in KMI-30 are Fauji Cement, Attock Petroleum, Sui Northern Gas Pipelines, Pakgen Power and NetSol Technologies. The outgoing five are Attock Cement, Abbott Laboratories, Pak Suzuki, ICI Pakistan and Indus Motor Company.

Out of the KSE-100 Index, KSE All-Share Index, KSE-30 Index, KMI-30, BK TI and OG TI, only KMI-30 tracks the performance of Shariah-compliant stocks based on the free-float market capitalisation methodology.

The KSE management has recomposed the index based on a review period of January 1 to June 30. The index is revised on a semi-annual basis.

The screened list of Shariah-compliant securities is provided by Al Meezan Investment Management Limited, an asset management company, whose research analysts review each company’s financial reports frequently to ensure that they meet all the relevant benchmarks.

Despite repeated attempts, no one from the KSE or Al Meezan Investment Management was available for comments on the reasons for the removal of the five companies from KMI-30.

For any stock to be Shariah compliant, it must meet six broad criteria. First and foremost, the core business of the company should not violate any principles of Shariah. Also, interest-bearing debt in relation to total assets of the company must be less than 37% for it to be called Shariah compliant.

Non-compliant investments in relation to total assets must be less than 33%. Similarly, non-compliant income in relation to total revenue must be less than 5%, illiquid assets in relation to total assets must be greater than 5% and the market price per share should be equal to or greater than net liquid assets per share for a company to become Shariah compliant.

Published in The Express Tribune, December 17th, 2013.