India is one of the fastest growing economies not only in the Asian region but in the world. The world’s second most populous country and one of the much-celebrated BRIC economies, India is set to lead the global economy in real GDP growth by 2013, outpacing even neighboring China, according to a recent market research report.
The report predicts that India’s GDP growth, which ends at 7.2% this calendar year, will recover in 2012 to reach an expected 8% growth, growing to 9.5% the following year. In comparison, China will fall slightly behind at a predicted 9%.
Global asset managers are capitalizing on the country’s growth potential. The Indian mutual fund industry has surged over the last five years, with total assets under management growing from INR3 trillion (US$58.5 billion) in September 2006 to INR7 trillion (US$135.36 billion) in September 2011; and with more than 1,150 funds on offer compared to 600 in 2006. The level of sophistication of products has also improved, with investors now having access to exchange-traded funds (ETFs), funds of funds and international funds.
Despite being home to the third largest Muslim population in the world, Islamic finance remains uncharted territory for the country. While critics outside the country frown at the snail’s pace growth of the domestic industry, market players argue that they are still at the crucial investor education stage and need to create further awareness, while they continue their effort to advocate the merits of Islamic finance to the government.
One market player pointed out the irony of the matter – India is the only country in the world with a substantial Muslim population that has no formal permission for Islamic finance activities.
However, the future looks bright for Shariah compliant funds. Since SEBI’s approval in 2007, Shariah compliant funds have become the most popular Islamic product in the country.
KFH Research in their report last year noted that non-Muslims were the biggest subscribers to one of the first Shariah compliant mutual funds in the country. Some players believe that Shariah compliant funds in India will help Islamic finance achieve the much-needed critical mass the industry is waiting for.
The signs are increasingly apparent. In August Pragmatic Wealth Management, an Islamic wealth management advisory company based in India, launched the Bonanza Pragmatic Shariah Fund.
As of the 30th September, a mere month after the fund was launched, its assets under management already stood at INR2.5 million (US$50,821).
In that same month Tata Mutual Fund, part of the Tata group of companies, repositioned its INR1.26 billion (US$28.1 million) Select Equity Fund as a dedicated Shariah compliant fund. In December, the Bombay Stock Exchange (BSE), Asia’s oldest bourse, launched its first Shariah compliant stock index.
A recent report estimates the total assets under management of Shariah compliant funds in India to be around INR1.4 billion (US$27.07 million).
However, there is a danger that rising inflation may hamper India’s high speed economic growth. Analysts believe that if this danger can be checked, however, India will be well on its way to becoming the next global economic powerhouse. Islamic finance has to establish itself and ride the economic wave of the country. — RW