Best Halal Stocks in India

Halal stocks refer to shares in companies that follow Islamic principles. These companies avoid generating income from interest and steer clear of industries such as alcohol, gambling, and tobacco. For many investors in India, shariah-compliant investing is about more than just profits. It reflects a commitment to ethical choices and a sense of social responsibility. Halal investing enables individuals to align their financial investments with their values while pursuing their financial objectives.

1. Reliance Industries Ltd: Reliance Industries is India’s largest private-sector conglomerate. It operates in various sectors, including oil, chemicals, digital services through Jio Platforms, retail, telecommunications, renewable energy, and media entertainment.
2. Tata Consultancy Services Ltd: Tata Consultancy Services provides IT services and consulting. It specialises in digital transformation, cloud computing, AI, enterprise software, cybersecurity, and business process solutions for clients in banking, manufacturing, retail, and public sectors.
3. Infosys Ltd: Infosys offers technology-led digital transformation services. It provides consulting, application development, system integration, business process outsourcing, cloud solutions, AI, and enterprise software to global enterprises, particularly in the financial services, manufacturing, and healthcare sectors.
4. Hindustan Unilever Ltd: Hindustan Unilever leads the FMCG sector in India. It offers well-known brands in personal care, home care, food, and refreshments. The company focuses on sustainable sourcing, innovation in health and hygiene, and expanding its reach in rural markets.
5. Maruti Suzuki India Ltd: Maruti Suzuki is the leader in India’s passenger vehicle market. The company offers a wide range of compact cars, sedans, SUVs, and electric vehicles. It is known for affordable mobility, a vast service network, and local manufacturing.

Here is how you can invest in the best halal stocks:

1. Open a demat/trading/stockbroker account. You can open a demat account with smallcase!
2. Conduct thorough research into the top halal stocks in India using Tickertape Stocks Screener. The screener offers over 200 built-in filters, allowing investors to select parameters and generate a list of halal stocks in India.
3. Place a ‘Buy’ Order on the top halal stocks that align with your investment thesis.

Sharia-compliant stocks follow Islamic law, which prohibits investments in activities like usury, gambling, and any business with uncertainty. The key sectors to avoid are:

• Institutions dealing with interest and excessive debt
• Alcohol production and distribution
• Pork-related products and non-halal food processing
• Gambling
• Adult entertainment
• Tobacco
• Marijuana
• Cloning
• Firearms and defence

For a stock to be considered halal, it must adhere to specific Islamic guidelines. Sharia-compliant funds typically have a board of Islamic scholars who review and approve investments in accordance with standards established by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Each fund follows the interpretations and judgments of its own Shariah Board.

The screening process involves two main steps:

• Business Activity Screening: Companies are excluded if they generate income from activities that contravene Sharia principles. This includes interest-based financial services, alcohol, pork products, gambling, adult entertainment, tobacco, recreational drugs like marijuana, genetic cloning, firearms, and defence-related industries.
• Financial Ratio Screening: The company’s financial health is also reviewed. To qualify, interest-bearing debt must be less than 33% of total assets. In addition, interest-related income or assets should not exceed 30% of the company’s average market capitalisation over the past 36 months.

Many scholars agree that the following sectors are not permissible:

• Alcohol – Manufacturing or selling alcoholic drinks
• Tourism – Businesses not aligned with Islamic values
• Hospitality – Hotels, nightclubs, and services that go against Islamic principles
• Adult entertainment – Including pornography and related industries
• Interest-based finance (Riba) – Banks and lenders earn through interest
• Conventional insurance – Companies that do not follow Shariah-compliant structures

Some companies operate in multiple sectors, making it harder to classify them. These are referred to as “mixed companies,” and many investors avoid them to ensure compliance.

Halal Mutual Funds are investment funds that follow Islamic principles. In 1984, Dr M. Yaqub Mirza proposed creating the first US mutual fund that complied with these principles. His proposal led to the launch of the Amana Income Fund. As a member of a Muslim investment group, Mirza faced challenges while checking which securities met halal requirements. He saw the need for professional guidance and promoted a mutual fund model that allowed investors to share profits and losses fairly.

• Shariah indices exclude companies if their accounts receivable or market equity value is 49% or higher.
• Shariah-compliant firms can earn up to 5% of their revenue from non-compliant activities.
• Shariah boards define these principles, and 935 companies in the Nifty index follow them.

• Ethical Alignment: Halal stocks in India follow the ethical standards of Muslim investors and often match socially responsible investing guidelines with strong ESG metrics.
• Risk Mitigation: Shariah-compliant companies avoid interest-based borrowing to reduce risks. These investments go through detailed checks and maintain transparent practices.
• Diverse Portfolio: Halal stocks span multiple sectors, including healthcare, technology, manufacturing, and real estate, to help investors diversify their portfolios.
• Inclusivity: Shariah-compliant stocks in India attract ethical investors beyond the Muslim community, appealing to individuals who prefer responsible investment practices.

• Market Volatility: Halal stocks in India tend to move in line with overall market trends. Even though they adhere to Shariah principles, they are still influenced by economic fluctuations, inflation, and investor sentiment, which can result in short-term price fluctuations.
• Limited Diversification: Since halal investing avoids interest-based finance, alcohol, tobacco, and gambling, investors have fewer sectors to choose from. This limited diversification can increase risk if one sector underperforms.
• Compliance Challenges: Companies must maintain their Shariah compliance through regular checks. If a business takes on excessive debt or earns income from non-permissible activities, it may lose its halal certification, which can negatively impact investor confidence.
• Liquidity Concerns: Halal stocks often trade in smaller volumes compared to conventional stocks. This lower liquidity can make it harder to buy or sell shares quickly without affecting the halal share price.
• Regulatory Changes: Any updates in Shariah guidelines or government policies can change a stock’s halal status. Investors should stay informed about regulatory developments to avoid non-compliant holdings.

• Shariah Compliance: A company must align its business activities and earnings with Islamic principles to qualify as halal. Firms that operate in gambling, alcohol, or interest-based banking do not appear on Shariah-compliant lists.
• Financial Ratios: Halal-compliant companies typically maintain financial thresholds, such as a debt-to-equity ratio, generally below 33%. These limits help companies maintain consistency with Islamic finance principles.
• Verified Halal Stock Lists: Certified Shariah indices and updated halal stock lists help investors identify companies that meet compliance standards. These references exclude firms that derive revenue from non-permissible sources and promote transparency for investors.
• Liquidity and Trading Volume: Stocks with higher trading volumes usually offer smoother buying and selling experiences. Liquidity helps maintain price stability, especially for halal stocks that have limited market participation.
• Certification and Audits: Recognised Shariah boards conduct regular audits to confirm that companies meet compliance standards. Independent verification upholds the ethical integrity of halal investments and strengthens investor confidence.