Best Halal Stocks in India

What Are 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.

About the Top Halal Stocks

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 for global enterprises, particularly in financial services, manufacturing, and healthcare.
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.

How to Invest in Halal Stocks?

Here is how you can invest in halal stocks in NSE:

1. Open a demat/halal share trading/stockbroker account. You can open a demat account with smallcase!
2. Conduct thorough research on the top halal stocks in India that interest you. Investors can use tools like the Tickertape Stocks Screener to do this. The screener offers 200+ built-in filters to choose from, and investors can select the parameters to research and generate different halal shares list and conduct halal stock screening.
3. Place a ‘Buy’ Order on the top halal stocks of your choosing.

What is Sharia Compliance?

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

What Makes a Stock Halal?

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.

Criteria for Not-Halal Sectors

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 earning 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 called “mixed companies,” and many investors avoid them to ensure compliance.

Key Features of Shariah Investments

• Shariah indices exclude companies where accounts receivables or market equity value is 49% or higher.
• Shariah-compliant firms can have up to 5% of their revenue from non-compliant activities.
• Shariah boards set these principles, and 935 companies in the Nifty index are Shariah-compliant.

Benefits of Investing in Halal Stocks

• Ethical Alignment: Halal stocks in India meet the ethical standards of Muslim investors and often follow socially responsible investing guidelines with strong ESG metrics.
• Risk Mitigation: Shariah-compliant companies avoid interest-based borrowing, reducing risks. These investments go through careful checks and maintain transparent practices.
• Diverse Portfolio: Halal stocks cover multiple sectors like healthcare, technology, manufacturing, and real estate, helping diversify a portfolio.
• Inclusivity: Shariah stocks in India attract ethical investors from beyond the Muslim community, appealing to those focused on responsible investing principles.

What are Halal Mutual Funds?

In 1984, Dr. M. Yaqub Mirza proposed the creation of the first US mutual fund adhering to Islamic principles, which led to the inception of the Amana Income Fund. As an active member of a Muslim investment group, Mirza encountered challenges in vetting securities for halal portfolios. He recognised the need for professional expertise and advocated for a mutual fund structure, ensuring that investors’ participation in profit and loss was ensured.