How to Find Shariah Stock Investment

Investing is one of the most discussed topic for everyone, most of Muslims have the added challenge of ensuring of their investments are Shariah compliant. The strict prohibition of interest in Islam makes many conventional investment limits to observant Muslims. Shariah based stock investment is in accordance to the requirements of Shariah laws and the principles of Islam.

There are three basic rules which needed to be adhered to investment from the standpoint of Shariah.

1.      Absence of interest

2.      Potential for ‘unethical concerns’ in the investment mix.

3.      Nature of the contract between the parties involved.

Basics of Shariah based Stock Investment:

For an investment to be HALAL, it must be in equity instead of debt. Investing in equity means having partial ownership by buying shares of the company,  instead investor giving a loan and getting paid interest regardless of how the company does, with equity, the investor shares in the profit if the company does well and shares in the losses if it does poorly. 

The most common way to get equity of a company is to buy its shares on the stock market.  Not every company who is offering its equity through selling shares in the stock market represents a HALAL Investment though. Strictly no investment also in the stocks that engage in short selling and the use of leverage products is Shariah Compliant.    

Shariah based Stock Investment in Pakistan:

If you have the means and the capital, and you really wanted to invest in Pakistan Stock Market, but how do you ensure that your investments are Shariah compliant? Fortunately, Pakistani investors need not to remain concerned anymore, which stocks pass the filter of Shariah compliance.

KSE Meezan Index (KMI-30) is Islamic stock market index in PSX – Pakistan Stock Exchange. In Pakistan thirty companies that have been screened for Islamic Shariah Criteria.  The index was introduced in 2009 and recomposed last from Jan 2018 with the guidance of qualified and well reputed Shariah experts when Shariah compliance of stocks is done.

A stock market index is a measurement of the value of a certain section of the stock market.  What Muslim investors want to know is not the value of that index or how that value goes up or down, but exactly which companies are included in the Islamic index. Even today Pakistani’s or across the world Investors can access Azeetrade.Com a division of AZEE Securities online trade app developed which tells you all the index watches of Shariah Compliant Stocks. Company's stock symbol in the trading app's function will pull up all the list of stocks.  

Such resources make it much easier for Muslims to invest with peace of mind knowing that their investments are Halal.

Want to trade in Stock Market? Know the basics of Technical Analysis

It’s important to learn about the basics first before explore the world of the technical analysis of stocks. Technical analysis can help you make sense of the way investor behavior drives market prices. No matter how much technical analysis basics research that someone does, there is absolutely no way that anyone can predict what a stock is going to do. You can only predict what is probable to happen, based on the indicators, and then trade what is happening.

Technical analysis is an art of using historic price movements of a stock/index to get direction of future price trends. More than absolute prediction it aids traders to get an indicative on price of a stock/ index in short term.

The stock market is a collection of traders and computers from around the world that are buying and selling stocks.  Every trading decision that traders make leaves a digital footprint. This footprint forms a chart patterns such as bull flags, bear flags, ascending triangles, and many more other patterns. Sometimes there will be multiple patterns within patterns! 

The following parameters are used for analyzing charts:-

Price:  The market price is the current price at which an asset/share/commodity can be bought or sold. It is the highest amount a buyer is willing to pay for a particular stock.

Volume: Volume is one of the most basic and most beneficial parameter to understand while reading a stock/index chart. Volume is the total number of shares traded in a particular stock throughout a specific time. A drastic change in traded volumes can indicate a rise or a fall in prices.

Trend: After volume, trend is the second most essential tool for a trader. A combination of trend and volumes aids the trader to decide on whether to enter or exit a particular trade. Trend is basically classified in three types, uptrend, downtrend and sideways trend or consolidation.

Trend-line: The oldest and easiest way of determining the trend is with a "trend line." All that is required is two support points to draw an uptrend or two resistance points to draw a downtrend.

Support level: is the price around which previously, a particular security/commodity finds incremental demand. Traders use this level to enter the stock.

Resistance level: is a price around which a stock finds incremental sellers. Traders use these levels to exit a long position or even short sell a security.

Understanding Stock Quotes:

Investing wisely is something everyone would like to do. Once you open online trading account complete your KYC on-boarding formalities, you are good at trade in the stock market. You can trade online from the convenience of your home, if you have activated your account. Here is one term you frequently hear with respect to the stock market one must know before you start trading.

Stock Prices & Quotes: 

The typical stock quote contains more information than just the current market price per share. It often reveals where the price has been in the past and where it might be heading in the future. A quote can also help the analyst to understand the current stock price relative to historical prices.

To make trading easier for the investor, every stock quote contains a set of standardized information.  They disclose both the current trading price for a stock as well as a stock's bid and ask prices.

Bid Price of a Stock:  the price that someone has offered to pay for a stock.

Ask Price of a Stock:  the price at which a holder of a stock is willing to sell that stock.

One of the purposes of a stock exchange is to match buyers with sellers.  Beyond the current price of a stock, there are two more elements that usually accompany the quote, the most recent price relative to the prior day's closing price, and the percentage change in price from the prior trading day.

An investor or any Institution can access Financial Portal by AZEETRADE.COM a division of AZEE Securities provides additional information along with a stock quote such as historical price data.  This may include the daily high and low, the 52 week high and low, as well as the previous close and the day's opening price.

Daily High and Low:  the highest and lowest selling prices for a stock during the current trading day.

52 Week High and Low:  the highest and lowest selling prices for a stock over the previous 52 weeks.

Previous Close:  the price of the stock at the close of the previous trading day.

Opening Price:  the price which was paid for the first shares of stock traded on the current trading day.

By understanding the historical price information relative to the quoted stock price, investors can, at a glance, get a better feel for where the stock is trading relative to the recent and distant past. 

What are the Budget expectations for Stock Markets?

Budgets and stock markets have had a long relationship. Normally, Stock markets tend to overreact to budget incentives. The proposed Budget 2018-19 may not have been hugely positive for the Stock Markets in policy terms. However, the markets will be looking for reforms related and a few tax-related triggers.

This may sound a bit strange but this budget could give a thrust to equity as an asset class. By focusing on reforms and the benefits of corporatization, the government has continued its pressure on non filers and non documented assets to bring into documented fold. That puts Stock Market at an advantage. Pakistan Stock Market - PSX performed exceptionally well to reach an all-time high of 53,124 points in May 2017 from 19,000 in May 2013 and its market capitalization reached almost $100 billion in 2018. However we witnessed a steep decline of more than 30% as a result of political ripple effects and implications of macro economic challenges. Also, the higher fiscal deficit is likely to be negative for stock market, which have already been going up sharply in the last few months. With current account likely to be under further pressure, that is the negative vote but look at the positive side. The massive allocations/incentives for agriculture and reforms initiatives are likely to have a multiplier effect on GDP growth. This is a lot more value-accretive for Stock Market. So at a macro level, Stock Market really do not have reasons to complain.

Stock Market Specific Measures:

·         With Holding Tax on issuance of bonus shares has been abolished.

·         Super tax to be reduced by 1% each year from FY19 onwards.

·         Corporate tax to be reduced by 1% for FY19 and will be reduced by 1% annually till FY23 for Non-Banking companies.

·         Tax on undistributed profits has been reduced to 5% from 7.5%. Moreover, condition of distributing 40% after tax profits has been relaxed to 20%.

·         Tax of 0.02% on commission earned by brokers has now been made adjustable, compared to previous.

All in all the impact of the Budget FY2018-19 on equity market would be 'Positive', while CGT and tax on dividend maintained. Overall Fertilizer, Textile and chemical to benefit while Banks, Oil & Gas to remain neutral and Auto and Cement to likely remain affect.

It is hard to say which way market sentiment would drive the Stock Market in current fragile political environment. But it needs to be underscored that this budget is significant in more ways than one!

Tips for Successful Long Term Investor

Investing is an art that anyone can learn. The difference between an investor and a trader is a lot more sensitive. But the basic difference is that an investor tends to have a longer-term perspective. Many follow analysts and a financial adviser, but they can only take you so far. They can recommend, but the best fit for you will come from making your own choices. There are some basic guidelines & rules that investors and traders across the country should follow, after all it is your hard earned money and it should be channeled wisely.

Rules to help you become a successful Long Term Investor;

1.      Your success at trading depends on your knowledge of markets. Learning to invest doesn’t happen overnight. Try to learn from the very scratch, and don’t consider yourself as an expert even if you know better the others.

2.      Take a long-term view on investing in stocks, this is the fundamental rule. You cannot hope to make money even in quality stocks invested in less than 2-3 years. Normally, a holding period of 4-5 year is what you need to be prepared for.

3.      Concentrate on a few high-quality stocks. There’s no need to own twenty or more stocks.

4.      Do your homework on the stock. There is really no alternative to solid research. Understand the business the company operates in and its prospects. Know the entry barriers and understand the competition.

5.      It is OK to be wrong but it is bad to stay wrong. It is normal for many investors to hold on to stocks where price movements go against you. That is not a very wise thing to do because idle money has a cost. Most investors, even the best among them, get a good number of their investment ideas wrong. The idea is not to fall in love with a stock.

6.      Averaging your positions is something best avoided. If you bought a stock and the price went down by 10%, the normal tendency is to buy more of the same stock to reduce the average cost. Firstly, you were wrong the first time and by averaging you are being doubly wrong. Secondly, you are increasing your exposure to one stock inordinately.

7.      Keep an audit trail of your trades. The best insights into successful investing are available when you look back and analyze your own trades. An investor has to be extremely willing to learn from his own mistakes and taking remedial action in the future.

8.      Don’t concentrate your portfolio on a handful of stories. You may rightly believe that auto industry could outperform in the next 5 years. But allocating 80% of your portfolio to auto defeats the basic grain of diversification. You need to spread your risk.

Investors should use their own judgment before investing in stocks. This skill can be learnt over a period of time. It is like planting a seed and watering it over the years for the plant to grow into a tree. It needs time and patience for the fruits to be harvested.