For decades, global markets have had a name for profiting from vice: “sin stocks”—tobacco, liquor and gambling businesses that have often proved inconveniently rewarding. India’s exchanges have now placed the opposite bet. In the past month, the BSE and NSE have launched two values-based indices—the BSE Saatvik 100 and the NSE 500 Ahimsa—wagering that virtue, too, can compound annually.
The Saatvik 100 is built for investors who would like their portfolios to observe roughly the same discipline as their kitchens. Its rules-based methodology rests on three principles—non-violence, compassion for living beings, and avoidance of toxic and addictive products and habits—and, to enforce them, shows the door to companies across 35 basic industries. Never before has so much of corporate India been excluded on grounds of temperament.
The NSE 500 Ahimsa takes a more traffic-signal approach to the Nifty 500, sorting companies into Green, Orange and Red bands according to their involvement with animal harm. Only the Green band—businesses with little or no such involvement, including IT, telecom, media, auto components and cement—makes the cut. The Red band includes meat, poultry, eggs and dairy, leather, and certain drugs and cosmetics. The Orange band is where moral ambiguity goes to do business: the FMCG major with a ghee line, the clothing company with a modest leather problem.
Market Potential
The exchanges are not merely being pious; they may be onto a market. Venkatachalam Shunmugam, partner at MCQube and former head of research and index administration at MCX, says the indices could bring an ethical investment framework rooted in Indian principles such as ahimsa to domestic and foreign investors, including institutions with ethical mandates. Prasanna Pathak, deputy CEO of The Wealth Company Mutual Fund, sees scope for index-linked products aimed at values-driven retail investors, HNIs and family offices looking beyond conventional thematic funds.
The newcomers are joining an existing congregation. Shariah and ESG indices already allow investors to screen portfolios according to religious or sustainability criteria. And, on the numbers available so far, virtue has not necessarily demanded a vow of financial poverty. BSE says the Saatvik 100 delivered a three-year CAGR of 12.22% and a five-year CAGR of 11.11% as of May 29, while NSE’s back-testing puts the Ahimsa index’s five-year CAGR at 13.09% as of June 30. These are historical or back-tested index returns rather than promises, of course. Karma, like markets, offers no guaranteed yield.
Purity also comes with earthly complications. The Saatvik 100 has roughly 40% exposure to banks. Banks, unfortunately for moral screening, lend to almost everybody. As Shunmugam points out, a bank may qualify for the index even while financing businesses that would themselves be shown the door. Ethical purity becomes considerably harder once money starts moving through intermediaries. The Ahimsa index, he says, offers greater sectoral diversity.
Then there is the awkward question of how different the virtuous portfolio is from the merely sustainable one. The Nifty 100 ESG and Saatvik 100 share seven companies among their top constituents—ICICI Bank, Bharti Airtel, HDFC Bank, Infosys, State Bank of India, Mahindra & Mahindra and Axis Bank. Together, these account for 29.33% of the ESG index and 35.24% of Saatvik. Portfolio overlap works out to 26.92% under Sebi’s methodology, based on available constituent weightages.
BSE says the indices use different selection criteria and should be viewed as distinct investment avenues. Pathak agrees that overlap is inevitable: companies clearing ethical screens often score well on ESG parameters too. But the resemblance has limits. Food processors and some healthcare companies, for instance, may boast respectable ESG credentials while failing stricter ethical screens. That leaves investors with an unusually philosophical asset-allocation question: not merely how much risk they can tolerate, but what exactly they are willing to own.
The indices cannot promise enlightenment, and past CAGR, as ever, is no guarantee of future karma. But for the investor who has long wanted a demat account that aligns with the dinner table, Dalal Street finally has a listing.