The Dharma Indexes


Stock indexes are an important part of the stock markets. A Wikipedia entry here will give you a good overview. Last month Dow Jones launched a family of indexes called the Dow Jones Dharma Indexes, in association with Dharma Investments.

According to the Dow Jones Indexes website, The Dharma Indexes are a “family of faith-based equity market indexes that screen companies for compliance with Dharmic religious traditions.” There are five indexes – Global, US, UK, Japan and India.


Dharma is a spiritual concept central to the many religions originating in South Asia, including Hinduism, Buddhism, Jainism, and Sikhism.… Two ethical principles relevant to the context of Dharma and crucial to the formation of the indexes include:
– Ahimsa/Karuna or non-violence
– Loka-samgraha/Metta or the concept of stewardship
The spirit of these concepts is present in all Dharmic religions and form a basis for the development of a Dharmic investment model.

Ethical and faith-based indexes are not new. Islamic indexes, made up of companies that meet Sharia based criteria, have been around for a while now. I guess it was time for someone to try an index focused on Hinduism and Buddhism.

Making an index is not very complicated. The things one has to decide in making an index are:

  • What universe to pick the index from. (Dharma US index will be from US companies)
  • What criteria to use to pick the ‘components’ or the companies. (Ahimsa/Karuna etc.)
  • How to weight the components. (typically market capitalization weighted)
  • Most indexes are based upon clear, numerical, transparent criteria. But there often will be some subjectivity involved. In the case of an ethical index like the FTSE4Good, or a faith-based index like the Dharma Index, the subjectivity is quite high. Having a brand name like Dow Jones helps, but that isn’t enough. A lot of work needs to be done to put together a group of high credibility experts to set up criteria that can be applied mechanically.

    Once you have an index going, the rest is marketing. You monetize an index by licensing its use to asset managers who will invest in companies that form a part of the index. With index funds and ETFs doing so well, this is a good time for the indexes business.

    I am going to follow the Dharma index with great interest. Hinduism, unlike Islam, is not a monolithic religion. No single religious text guides the conduct of the faithful. Practices vary across region and caste quite a bit. If there is so much variation in the practice of Hinduism, including the Jain, Buddhist and Sikh faiths makes it even more of a mixed bag. I also don’t know if Hindus will want to mix faith with investing. While the Koran has strict guidelines on usury for instance, I don’t believe there is anything approaching that in Hindu texts. All this means that the appeal of an asset management marketing strategy based upon Dharma, could be limited.

    On the other hand, sometimes, in an undifferentiated but highly profitable industry which is the Indian mutual funds industry today, a marketing gimmick may help cut through the clutter. I shudder to just think of the possible tag lines advertising agencies might come up with.

    I would have liked to share with my readers the companies in the Dharma Indexes and the criteria that they use for their selection. Unfortunately, there is no information on the Dow Jones Indexes website. They give information on both components and criteria for most of their indexes, but not for the faith-based ones. I would think that where subjectivity is high, transparency would be more important. FTSE4Good, which is an ethical (social responsibility) has both criteria and components publicly available.

    [Late update – Dow Jones revealed some of the companies in the Indian index to Business Week. The article is here]


    1. Prateek says:

      Interesting… seems like the Reliance companies were left out?


    2. Krishna says:

      When religion entered political mainstream, it carved deep fissures on faith lines. Looks like its guns are trained on commercial enterprise now. What’s up next? Faith scholars to upstage fund managers and Fatwas to replace stock tips? It would be interesting to watch valuation norms based on intrinsic “Punya” and “Paap” instead of earnings growth and cash flows 😉


    3. Harsh says:

      Let’s hope it does not turn out to be a DRAMA (which has closer resemblance – than DHARMA – to the ticker DRMA)


    4. Sameer Agarwal says:

      End of the day – investments made across DHARMA or (as harsh puts it) DRAMA, should not really affect any market since the basis of each is still on ‘trust’. Technically there is nothing unscrupulous about rich gujjus running all the way from Baroda and surat carrying suitcases full of 1000 re notes and eager to eat up the ADAG soufflé when there are many other dishes waiting to be eaten.

      But as you put it correctly – putting an accurate ‘mathematical’ engine behind the index is a challenge but more so because the marketing of such an index is pretty much organic and does not really require fervent marketing brains. On the contrary, a fervent marketing behind it may dislodge the honest belief of such niche religious sentiments. It’s almost impossible for secular India to build regulations to even monitor, let alone control, such Dharma investments.

      Perhaps there are some things best left untouched.:)


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