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A small Islamic fund has garnered surprisingly good demand in India as investors chase better returns, suggesting that the country could eventually embrace sharia banking despite strong political opposition.Non-Muslims are the biggest buyers of Taurus Asset Management's sharia-compliant Ethical Fund, while Muslims have not resisted its conventional investments, challenging a widely held view that religious beliefs define investor demand in India."The misconception that religion governs all activities of Muslims is a myth. Performance and returns are paramount, sharia is secondary," Taurus chief executive Waqar Naqvi said."The number of Muslim investors I have in my non-sharia schemes is by far too many as compared to Muslims in the sharia schemes."Taurus's $6 million Ethical Fund, which invests in sharia-compliant stocks such as Hindustan Unilever, Tata Consultancy and Apollo Hospitals, is up 113.94 percent in the year to April 30 compared to a 59.36 percent rise for the S&P CNX 500 Sharia index.The surprise welcome for this sharia fund could pave the way for the $1 trillion Islamic finance industry to tap the world's second-fastest growing economy, although the road to a fully developed sector appears long and bumpy.Central bank chief Duvvuri Subbarao said last month India needed separate laws for Islamic banking. But legislative changes are likely to face opposition in a country where testy Hindu-Muslim relations have triggered deadly riots.A court in India's southwestern Kerala state said in April the state government should not take part in an Islamic financial company after an opposition politician argued against state involvement in a firm that "favours a particular religion"."There is some apprehension as the word Islam is used. People resist it," said K. Rahman Khan, deputy chairman of the Rajyasabha, India's upper house of the Parliament.CONTEST FOR CAPITALIndia's regulatory framework does not accommodate Islamic banks but allows several non-bank financial institutions to offer interest-free products and sharia-compliant funds, a potential channel to tap cash-rich Gulf investors.H. Abdur Raqeeb, general secretary of lobby group Indian Centre for Islamic Finance (ICIF), said Gulf investors are looking towards India as a major investment destination.India, which has the world's third-largest Muslim population, has been an investment magnet due to its booming economy.In 2009, when India's main share index rose 81 percent, foreign investors were net buyers of $17.5 billion into the market. In the previous year, overseas investors had drained a net $13 billion as the shares plunged more than 52 percent.But there is growing competition for capital around the world and investors want more reforms to privatise Indian state firms and relax curbs on foreign direct investment."India wants to be a serious superpower in this part of the world so if they see even China is opening up for Islamic banking, then eventually it's like peer pressure," said Rafe Haneef, managing director of Fajr Capital, an Islamic investment firm headquartered in Dubai.Mohammad Faiz Azmi, PricewaterhouseCoopers's global Islamic finance leader, is less hopeful about the industry's future in India, saying political opposition meant that government rhetoric has not translated into actual development."In fact, what we're noticing is Islamic money coming out of India," he said.(Editing by Kim Coghill)
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