In order to gauge the performance of the Shariah-compliant segment of the equity market, the KSE and Meezan Bank have developed an All Shares Islamic Index, which is made up of 225 companies. All shares traded on the KSE that meet the Shariah screening criteria are included in the index.
It will reflect the performance of Shariah-compliant equities in their entirety because a separate index – KMI-30 Index – is already in place to gauge the performance of the 30 most liquid Islamic stocks.
The day-to-day maintenance of the index will be carried out within the Broad Index Policy Framework set by the KSE and Al Meezan Investments. It will be calculated and disseminated to market participants, regulators and trading screens on a real-time basis. Its re-composition will take place on a semi-annual basis.
As part of the selection process, each company’s financial reports will be reviewed by research analysts of Al Meezan Investments. They will assess a company based on two broad categories, namely technical filters and Shariah-screening criteria.
There are six technical filters, such as the company should not be on the defaulters’ counter and that its securities should be available in the Central Depository System.
Shariah-screening also consists of six criteria. First and foremost of these criteria is that the core business of the company should not violate any principle of Shariah. The second condition states that the company’s interest-bearing debt to assets ratio must be less than 37%.
A company is also required to have its ratio of non-compliant investments to total assets less than 33% in order to be part of the All Shares Islamic Index.
Similarly, the ratio of non-compliant income to total revenue should also be less than 5%.
Rules also stipulate that the ratio of illiquid assets to total assets must be at least 25% while market price per share should also be at least equal to, or greater than, the net liquid assets per share.