THE NEED FOR A JAIN INDEX?

By Ruma Dubey

If there is a Shariah Index, the question being asked is, “why not a Jain Index?”

This is no joke. Both the BSE and NSE have received several requests to start a new index which is Jain compliant. There are some 4.2 million Jains in India and they do form an integral part of the investing community.

But what would this Jain index really mean? Like the Shariah or Islamic beliefs and religious strictures, those in the Jain community also follow a set of rules. They do not invest in liquor, tobacco, leather, poultry, meat stocks as these are all considered to be “sins” as per their religious beliefs- basically everything which is non-vegetarian. Corporate governance and transparency do not figure out in the list of ideologies. Like they may buy into a fly-by-night company like Austral Coke but not buy Bata.

This is not an easy task. Before the Shariah Index was launched, the exchanges had to consult with religious scholars and investment managers, to understand exactly what could be allowed and what cannot be. A similar exercise would have to be carried out it this Jain Index does see the light of the day.

Interestingly, many would call both these indices as ‘religious’ indices as Shariah is based on Islamic beliefs and Jain (if it is introduced) would be Jainism. But did you even know that there was another index – Dharma Index? This index was aimed at the Hindus and Buddhists norms, which could also be extended to Jains and Sikhs. But due to lack of response, this index was disbanded. Thus for appeasing a few, the exchanges will have to check the viability of starting a new index.

While on the topic of index, what would really make an interesting index would be an Ethical Index. Ethics, in simple English means doing what is morally right and if we stretch it further to the corporate world, it means being socially responsible. Thus ethical investing means putting money in companies which are socially responsible, which could embrace anything from being transparent, being environmentally conscious, being labor friendly; basically has very high disclosure norms when it comes to social, environment and corporate governance. Well, if that is the criteria then that leaves us with very little companies to invest in; maybe even less than what can be counted on fingertips.

Ethical investors are against all things “vice” which means they do not put money in companies which work only for profit, under any cost. In fact there are mutual funds which have ethical funds and they have something like a “Devils Index” which operates on the logic that anything which makes profits, is a good stock to buy.

International Finance Corporation and a consortium of S&P, Crisil and KLD have formed an index - S&P environmental, social, and corporate governing (ESG) Index, which measures ESG practices based on quantitative as opposed to subjective factors. It evaluates the transparency, disclosure and management systems of companies.

This is more like investing with a conscience. And if we were to list a few of these ethical stocks, what could those possibly be? First and foremost, one name pops into the mind – Infosys, for its transparency and ditto for TCS and Wipro. And if you look at most of the MNCs, they would fall into the criteria for good corporate governance, being socially and environmentally more conscious. Other names which could figure would include Cairn India, Tata Global, Dr.Reddy’s, ONGC, HUL, Cipla, GlaxoSmithkline Consumer, Dabur, Marico. Tata Ethical Fund, which like Taurus Ethical Fund is more designed on “Shraiah” stocks, has a portfolio which includes stocks which are high on corporate governance like – Amara Raja, Lupin, Cipla, Maruti, Emami, NIIT, Cummins, Wabco, Kansai but it also includes mining stocks which are not necessarily environmentally friendly.

Be it ethical or Jain or Dharma, all indices will ultimately overlap at some point or other. Being a purist ethical investor might restrict your choices and also your returns. More importantly, ethics is a very subjective matter and the lines are blurred when it comes to making a choice. It would instead be wiser to ethically evaluate stocks. Like this Norwegian fund… it held a large chunk of Wal Mart shares. It once came to light that Wal Mart locks up its employees in stores/warehouses to look after the goods and an employee once crushed his leg but could not get out as the employees were not given the keys. The state owned Norwegian fund sold its entire holding of Wal Mart. It was no ethical fund, it just was ethical when it came to judging companies it held in its portfolio, was more socially responsible.

Here’s a checklist of what to lookout for, irrespective of the type of index. You may have religious compulsions but even within that, be sure to watch out for these big no-no's.