Performance of Shariah Compliant Index: A Comparative Study of India and Malaysia

To meet the increasing demand for Shariah Compliant Investment Avenues in equity markets, a number of Islamic
Indices have been launched the world over. As of today, there are hundreds of Shariah Compliant Indices launched in
different countries. Dow Jones and FTSE Global were the first to launch the Shariah Compliant Index namely DJIMI
and FTSE Global Islamic Index Series (GIIS). Following the trend, MSCI also introduced Islamic Indices which are
constructed from the conventional MSCI country Indices and cover seventy developed, emerged, and frontier market
countries including regions such as the Gulf Cooperation Council countries and Arabian markets. While a number of
Shariah-compliant Indices have been launched by different publishers like S&P, MSCI, FTSE, Dow Jones, and Russell
to meet the growing demand but very few studies have been conducted to assess the performance of these indices in
comparison to their counterpart indices in terms of their risk and return. The present study has been undertaken to assess
and compare the performance of the MSCI India Islamic index and MSCI Malaysia Islamic index with their respective
conventional Indices for eleven years time period i.e, 2003 to 2013. Also, the behavior of Islamic Indices is studied
during recent financial crises. To assess the performance of these indices, average monthly raw returns, risk-adjusted
monthly returns were calculated using time series data of daily closing prices. To assess the risk involved Beta and
standard deviation have been used. The study has revealed that in India Islamic Indices have underperformed while in
the case of Malaysia, it has outperformed the respective conventional Index during the period under study. However, in both
cases, Islamic Index outperformed its counterpart index during the crisis period.