KARACHI: The Pakistan Stock Exchange (PSX) has replaced four companies in the Karachi Meezan-30 Index (KMI-30) with an equal number of constituents as part of the re-composition of Pakistan’s one of the two indices of Shariah-compliant stocks.

The four new constituents of KMI-30 are Byco Petroleum Pakistan, Kot Addu Power, Sui Southern Gas and Sui Northern Gas Pipelines. The outgoing four companies are Fauji Fertilizer, Fauji Fertilizer Bin Qasim, Shell Pakistan and Millat Tractors.

The recomposed index will be effective from today (June 29). Out of KSE-100 Index, KSE All-Share Index, KSE-30 Index, KMI-30, All Shares Islamic Index, BK TI and OG TI, only KMI-30 and All Shares Islamic Index track the performance of Shariah-compliant stocks based on the free-float market capitalisation methodology.

The All Shares Islamic Index was launched last year that gauges the performance of 225 companies, which constitute the whole spectrum of shares that meet the Shariah-screening criteria.

The PSX management has carried out the re-composition exercise based on a review period from July 1, 2015, to December 31, 2015. The index is revised on a semi-annual basis. The screened list of Shariah-compliant securities is provided by Al Meezan Investment Management, a private asset management firm, whose research analysts review each company’s financial reports frequently to ensure that they meet all the relevant benchmarks.

For any stock to be Shariah-compliant, it must meet six broad criteria. First and foremost, the core business of the company should not violate any principles of Shariah. Also, interest bearing debt in relation to total assets of a company must be less than 37% for it to be called Shariah-compliant.

Non-compliant investments in relation to total assets must be less than 33% for a company to be categorised as Shariah-compliant. Similarly, its non-complaint income in relation to total revenue must be less than 5%, illiquid assets in relation to total assets must be greater than 5%, and the market price per share should be equal to or greater than the net liquid assets per share for a company to become Shariah-compliant.

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