This document analyzes the relationship between macroeconomic variables (CPI, exchange rate, interest rate, money supply) and the S&P BSE 500 Shariah Index in India from 2009 to 2014. It finds: 1) The variables are stationary after taking first differences using the ADF unit root test. 2) There is cointegration between the macro variables and Shariah Index according to the Johansen cointegration test, indicating a long run relationship. 3) The Granger causality test shows bi-directional causality between most variables, except for a unilateral relationship between interest rate and the Shariah Index. In summary, the document examines the time series properties and

1. .
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

2. Causal
Relationship
SHARIH
INDEX
ER
CPI
IR
M3
Causal Relationship between all Macro Variable and Shariah Index
The present paper is focused on examining the
Macroeconomic Variable and BSE Shariah Index, during
the period from the date of launch of Shariah index in
Indian Capital Market i.e. from 1 April 2009 to 31st
March 2014.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

3. To carry out unit root tests to see whether the
macroeconomic variables and S&P BSE 500
Shariah Index are stationary or not.
To examine the relationship between S&P BSE
500 Shariah Index and macroeconomic variables in
India. And what is the number of co-integrating
vectors.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

4. Globally, Islamic finance is estimated to be worth about
$300 billion, growing at 20% annually. India with a 19.3%
Muslim population, the highest in a non-Islamic country,
should have been in the forefront of Islamic banking
initiatives, but it is yet to be permitted here. It will hugely
benefit the Indian economy by attracting investments from
the cash rich Middle Eastern economies on the lookout for
new investment destinations. Monetary police play a vital
role of this paper because of the relationship between S&P
BSE 500 Shariah Index and macroeconomic factors.
Economic theory postulates that exchange rates, inflation,
money supply and interest rates, as well as other factors are
important variables in developing a comprehensive
understanding of the behavior of stock prices and index
movements.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

5. FINANCE IN SHARIAH LAW
Shariah is Islamic canonical law, which observant
Muslims adhere to in their daily lives. Shariah has
certain strictures regarding finance and commercial
activities permitted for Muslims. It prescribes a set of
criteria which needs to be satisfied before a Muslim
investor or institution can invest in the equity of a
given company. From the view point of Shariah law,
businesses such as those dealing in pork, alcohol,
gambling, conventional financial services, media or
advertising, tobacco, pornography, music etc are non-
permissible for investment. Furthermore, companies
have to be screened so that they satisfy certain
accounting ratio restrictions.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

6. ISLAM AND THE FINANCIAL ECONOMY
The Islamic economy is built upon the real economy this is
where the process of production of tangible goods and services,
Islam has designated a role for finance in the economy - due to
Islam's focus on the real economy which is the wealth creating
aspect of any economy finance in Islam is not an end in itself as
there is no interest (Riba). Wealth in Islam is created through
each stage of industry i.e. mining, refining, manufacturing and
sales' All of this adds value at each stage and creates wealth for
the economy.
ِِ‫م‬ُ‫ع‬ْ‫ي‬َ‫ب‬ْ‫ل‬‫اا‬َ‫م‬َّ‫ن‬ِ‫إ‬ْ‫ا‬‫و‬ُ‫ل‬‫ا‬َ‫ق‬ْ‫م‬ُ‫ه‬َّ‫ن‬َ‫أ‬ِ‫ب‬َ‫ك‬ِ‫ل‬َ‫ذ‬َِ‫ع‬ْ‫ي‬َ‫ب‬ْ‫ل‬‫ا‬ُ‫ه‬ّ‫ل‬‫ل‬ َّ‫ُل‬َ‫ح‬َ‫أ‬َ‫او‬َ‫ب‬ ِّ‫لر‬ ُ‫ُل‬ْ‫ث‬‫ا‬َ‫ب‬ ِّ‫الر‬َََّ‫ر‬َ‫ح‬َ‫و‬
"That is because they say: ‘Trading is only like Riba,' whereas
Allah has permitted trading and forbidden Riba." [al-
Baqarah, 2:275]
Riba (Arabic word) the basis of Islamic
Finance prohibits usury, termed as Riba (which is the lending of
money at exorbitant rates) but it doesn’t stop just there.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

7. SHARIAH SCREENING
Standard & Poor’s has contracted with Ratings Intelligence
Partners (RI) to provide the Shariah screens and filter the
stocks based on these screens. Ratings Intelligence Partners
is a London/Kuwait-based consulting company specializing
in solutions for the global Islamic investment market. Its
team consists of qualified Islamic researchers who work
directly with a Shariah Supervisory Board. It is continually
working with regional banks to create Shariah-compliant
equity products and expand investment offerings. Shaiarh
Screening based on:
Sectoral Based Screening: BSE TASIS Shariah includes
sector like Oil & Gas, FMCG, IT, Health Care, Transport
Equipment, Housing Related, Telecom, Metal Minning,
capital Goods, Chemical & Petrol, Consumer Durable,
Diversified.All these sectors are Permissible in Shariah Law.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

8. Accounting Based Screening: Furthermore, companies
have to be screened so that they satisfy certain
accounting ratio restrictions. There is financial ratio like
Leverage, cash holding and share revenue derived from
non-permissible business.
Leverage Measure :
= Debt/Market Value of equity 12 Months average grater
than 33%
Cash Compliance: Cash Holding
= Account Receivable/ Market Value of equity 12 Months
average greater than 49%
Revenue Share from Non-Permissible Business:
= (Net profit Income other Then interest income)/
Revenue greater then 5%
OBJECTIVE
INTRODUCTION
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION
SHARIAH LAW

9. • SHARIAH
INDEX 50
• CPI, M3,
• ER, IR
DAILY
RETURNS
• RBI
• BSEINDIA
• Yahoo finance
• Asiaindex.co.in
SOURCES
April 1, 2009
TO
Mach 31, 2014
TIME
PEROID
Methodology
 Study the Performance of Macroeconomic Variable
and Shariah Index
 The Unit Root Test of Dickey-Fuller
 Johansen - Cointegration Test
 Engle Granger Test for Shariah and Macro variables
 Correlation.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

10. In this study, daily returns, without any
adjustment for dividends, has computed
by using this formula:
Rt = ln(Pt / Pt – 1)* 100
Where:
Rt = is the daily return at time t of the
Shariah Index and Benchmark Indices.
Pt = is the daily price in time period t.
Pt-1 = is the daily price one period t-1.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION

11. Table 1: Descriptive Statistics of Shariah Index and
Macro-variable from April 2009 to March 2014
Table 1 present a summary of descriptive statistics of the variables.
Sample mean, standard deviation, skewness and kurtosis has been
reported in the table. Table shows that all the variables are skewed
except the Interest and Shariah. The volatility of variables in terms of
standard deviation as percentage of means highest in CPI and lowest
in Interest rate rest are following to the CPI.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION
Particulars CPI Ex. Rate Int. Rate M3 Shariah
Mean 0.7895 0.0034 7.7020 1.3651 0.4929
Standard Error 0.1236 0.0032 0.2898 1.1216 0.4348
Median 0.8265 0.0021 8.5400 0.3241 0.7391
Standard Deviation 0.9495 0.0248 2.2261 8.6153 3.3395
Sample Variance 0.9015 0.0006 4.9556 74.2238 11.1521
Kurtosis 3.9612 -0.0490 -0.8026 1.3362 0.5575
Skewness 0.3113 0.0972 -0.7241 0.3189 -0.5570
Range 6.1334 0.1161 7.6000 44.8563 17.2235
Minimum -1.6598 -0.0564 3.7200 -19.3336 -9.2633
Maximum 4.4736 0.0597 11.3200 25.5227 7.9603
Sum 46.5828 0.1978 454.4200 80.5384 29.0823
Observations 60 60 60 60 60

12. Table 2: Correlation Matrix of Shariah Index and Macro
variable and Shraiah Index from April 2009 to March 2014
Tables 2 have presented the correlation matrix of all macro variables
including the S&P BSE 500 Shariah Index. In which CPI and ER are
the highly correlated to each others, ER and IR, M3 and IR,
respectively have positive relationship, Shariah have negative
relationship with ER, IR, respectively and rest of variable have
positive relationship with Shariah.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION
Particular Shariah CPI ER IR M3
Shariah 1
CPI 0.151 1
ER -0.320 0.083 1
IR -0.016 -0.120 0.066 1
M3 0.057 -0.028 -0.158 0.002 1

13. Table 3: ADF Unit Root Test on Variables Results
Table 3, The results of the ADF test, When the variables are tested in level
then found IR on intercept was non stationary rest of variables were
stationary, but after that variables were tested in 1st difference all the variables
are found to be integrated of order zero and hence are stationary.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
ADF Unit Root Test
LIMITATION
CONCLUSION
Variables Model
ADF Test Statistic
Level First Difference
BSE Shariah
Intercept
-6.396 -10.170
(-3.605593) (-3.615588)
Trend & Intercept
-6.313 -10.039
(-4.205004) (-4.219126)
CPI
Intercept
-5.573 -5.664
(-3.605593) (-3.6329)
Trend
-5.641 -5.691
(-4.205004) (-4.243644)
ER
Intercept
-4.356 -6.331
(-3.605593) (-3.615588)
Trend & Intercept
-4.982 -6.232
(-4.211868) (-4.219126)
IR
Intercept
-2.734* -7.559
(-3.615588) (-3.621023)
Trend & Intercept
-6.219 -7.775
(-4.211868) (-4.226815)
M3
Intercept
-6.775 -7.220
(-3.605593) (-3.615588)
Trend & Intercept
-6.788 -7.191
(-4.205004) (-4.219126)

14. Table 4: Johanson Co-integration Test for Trace Statistic
The results are shown in table 4. An empirical result of trace
statistic indicates that the rejection of null hypothesis at 0.05
critical values i.e. there are no co-integration vector. In other
words, S&P BS 500 Shariah has long relationship with Marco
variables i.e CPI, ER, IR, M3. Trace test also indicates that 5
Co-integration equation at 5 % level of significance, tells about
long run equilibrium between Indian Islamic capital market and
selected Macro variables.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
Johansn Co-integration
LIMITATION
CONCLUSION
Hypothesize
d Eigen Value
Trace
Statistic
Critical
Value
Prob.**
No. of CE(s)
None * 0.591135 84.32996 69.81889 0.0023
At most 1 * 0.364766 50.34392 47.85613 0.0286
At most 2 * 0.310197 33.10095 29.79707 0.0201
At most 3 * 0.269554 18.9897 15.49471 0.0142
At most 4 * 0.169418 7.053909 3.841466 0.0079

15. The results are shown in table 5. An empirical result of Max-Eigen
statistic indicates that the rejection of null hypothesis at 0.05 critical
values i.e. there are no co-integration vector. In other words, S&P BS
500 Shariah has long relationship with Marco variables i.e CPI, ER,
IR, M3. Trace test also indicates that 1 Co-integration equation at 5%
level of significance, tells about long run equilibrium between Indian
Islamic capital market and selected Macro variables.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
LIMITATION
CONCLUSION
Hypothesized Eigen Value Max-Eigen
Statistic
Critical Value Prob.**
No. of CE(s)
None * 0.591135 33.98604 33.87687 0.0485
At most 1 0.364766 17.24297 27.58434 0.5592
At most 2 0.310197 14.11125 21.13162 0.356
At most 3 0.269554 11.93579 14.2646 0.1131
At most 4 * 0.169418 7.053909 3.841466 0.0079
EMPIRICAL RESULTS
Johanson Co-integration
Table 5: Johanson Co-integration Test for Max-Eigen Statistic

16. Table 6: Engle Granger Test for Shariah and Macro
variables, Paired Granger Causality Test
Granger causality test reveals that there is bi-directional relationship
between all variable except IR and Shariah, there is uni-directional
relationship i.e. IR does not granger cause Shariah.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
Engle Granger Test
LIMITATION
CONCLUSION
Null Hypothesis: Obs F-Statistic Prob.
CPI does not Granger Cause SHARIAH 39 1.6418 0.2086
SHARIAH does not Granger Cause CPI 0.0639 0.9383
ER does not Granger Cause SHARIAH 39 0.3267 0.7236
SHARIAH does not Granger Cause ER 1.4769 0.2426
IR does not Granger Cause SHARIAH 39 4.8027 0.0146
SHARIAH does not Granger Cause IR 1.4676 0.2447
M3 does not Granger Cause SHARIAH 39 1.6509 0.2069
SHARIAH does not Granger Cause M3 2.3447 0.1112

17. Table 7: Estimates of Normalized Co-integrating Coefficients
According to table 7, Where t-statistics (5.127, 3.622, 1.991,
2.059 of CPI, ER, IR, M3 respectively) are greater than
critical value (1.96 at 5% Level of significance) it reveals that
null hypothesis is rejected i.e. all variables are Co-integrated.
SHARIAH= 28.40+ 15.83 CPI + 353.32 ER + 79.91 IR + 8.5 M3
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
Co-integration
LIMITATION
CONCLUSION
Variables Coefficient Std. Error t-statistics
Shariah 1
CPI 15.834 -3.088 [-5.12737]
ER 353.325 -97.556 [-3.62177]
IR 79.914 -40.137 [-1.99105]
M3 8.512 -4.133 [-2.05933]
Constant 28.403

18. Table 8 depicts that error correction rate of Shariah is (-
0.02381) at 5% level of significant which is following by
IR (-0.0000531) & M3 (-0.017104) respectively. While
CPI, ER’s error correction rate arise (0.076085 &
0.000574) those are positive.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
VECM
LIMITATION
CONCLUSION
Variables Coefficient Std. Error t-statistics
Shariah -0.02381 -0.07553 [-0.31525]
CPI 0.076085 -0.01514 [ 5.02409]
ER 0.000574 -0.00055 [ 1.05002]
IR -0.0000531 -0.00172 [-0.03089]
M3 -0.017104 -0.02074 [-0.82466]
Table 8: Empirical analysis Vector Error Correction
Mechanism (VECM)

19. Graphical Table: 1 : Graphical Presentation of
Macroeconomic Variable and BSE Shariah Index
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
Graphical Presentation
LIMITATION
CONCLUSION

20.  Mostly data’s are on secondary base.
 Lacks of the primary data as investor are
not willing to share information.
 The data of research only from 1st April
2009 to 31st March 2014.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
VECM
LIMITATION
CONCLUSION

21. The results of this study strongly support the view that, there is a
substantial integration between Indian Islamic Capital Market and
Macro Variables because Islamic Finance growing the world Economy.
This paper empirically investigated the long run equilibrium
relationship between The S&P BSE 500 Shariah and Macro variables
CPI, ER, IR and M3. The investigator first used log return of all
variables then run the ADF test for becomes the stationary all variables
became stationary after level except the IR then again run ADF test in
1st difference for all variables now the time have come all variables
becomes stationary. Johansen Co-integration test applied only the
stationary data, Investigator found the long run relationship between
S&P BSE 500 Shariah and Macro variables CPI, ER, IR and M3, there
is highly cointegration of Shariah with ER which is following by IR,
CPI and M3 respectively. Granger causality test reveals that there is bi-
directional relationship between all variable expect IR and Shariah,
there is uni-directional relationship i.e. IR does not granger cause
Shariah. The multivariate co integration technique is used to investigate
the long run relationship. Shariah is not only for Muslim investors but
also non-Muslim investors. Islamic finance is growing the worldwide
economy. Islamic finance will be the future of world economy because
Islamic Finance works with socially responsiveness and Ethical way.
OBJECTIVE
INTRODUCTION
SHARIAH LAW
DATA & METHODOLOGY
EMPIRICAL RESULTS
LIMITATION
CONCLUSION