In India, Dow Jones Meets Dharma

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Say Goodbye to Defense and Tobacco Stocks

Some of the "unacceptable sectors" are tobacco, aerospace and defense, brewers, casinos, gaming, and pharmaceuticals that in dulge in animal testing and genetic modifications. So Kolkata cigarette maker ITC did not make it on the list despite its successful agricultural business and contribution to getting rid of middlemen to put more money in the hands of poor farmers.

In the U.S., those that made the grade on the Dow Jones Dharma Global Index include IT majors IBM (IBM), Apple (AAPL), and Intel (INTC). They were approved by the indices' serpentine list of advisers. All companies are reviewed quarterly, and any found to be noncompliant at any time are out, says Nihalani.

Overseeing the methodology and dharmic principles is a council of religious practitioners and academicians from India and abroad. These include an assortment of Indian spiritual and religious figures, including some with a cult following, such as Sri Sri Ravi Shankar, who often talks at the U.N., and Hindu religious leader Sadhguru Jaggi Vasudev, who was seen around the snowy landscape of Davos in his robes. There are also Western academics such as Francis X. Clooney, professor of divinity and comparative theology at Harvard, and Richard Gombrich, a scholar of Buddhist studies at Oxford.

Muslims Already Embrace Social Investing

Socially responsible investing is still a new concept in India. But Muslims in the country do have experience using religious criteria for investing. In 1999, Dow Jones pioneered the Dow Jones Islamic Market indices, including companies that adhere to certain principals in Islamic law. For instance, companies on the index cannot operate businesses in entertainment and gambling or produce pork or alcohol.

With Islam in the lead, could Hinduism be far behind? It seemed obvious that targeting Hinduism, another major world religion, would bring in a larger segment of the Indian population and diaspora. There was already latent demand from asset management companies in India to create the Dharma indices, reveals Sumeet Nihalani. Over the years, Nihalani says, investors have become choosy and many want to invest "in line with their faith. It's just that demand for something like that comes up and indexes get created," he says.

Now, with the Dharma indices, Gor boasts that Dow Jones can address all the major Indian religions. "Our new indices complete the entire suite of religion-based investing demand," says Gor. Thanks to a bull market last year, the Dow Jones Dharma India Index gained 81.22%. In comparison, the Dharma Global Index gained 6.21%, Dharma Japan was down 4.79%, Dharma Britain was down 10.11%, and Dharma U.S. was down 3.62%.

Not Directly Available to Retail Investors

Some investment professionals are apprehensive about the application of the Dharma indices. They feel that unlike the huge following of the Islamic index, the other religions are not so focused on their investment plans. Moreover, it could exclude exciting sectors like entertainment and liquor. "It could just be a fad," says Sandeep Shanbhag, head of Wonderland Investments, a Mumbai investment advisory company.

Retail investors can't invest in the Dharma indices directly, only through related products like mutual funds. But fund houses and financial service providers are not yet divulging their investment plans in regard to these funds. Will there be takers? Dharma stocks have their own niche, says Atul Bodke, senior fund manager at Standard Chartered (SCBFF) Mutual Fund in Mumbai, particularly when environmental issues such as global warming are in the news. "Certain investors are ready to forgo a part of the returns on a stock, if the company adheres to certain principles. It's a win-win proposition for them."

Lakshman covers India business for BusinessWeek .