Now Reading: NSE’s Ahimsa Index puts ethical investing to the test, sacrificing returns for values
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NSE’s Ahimsa Index puts ethical investing to the test, sacrificing returns for values
NSE’s Ahimsa Index puts ethical investing to the test, sacrificing returns for values
The National Stock Exchange launched the Nifty 500 Ahimsa Index, which excludes companies involved in animal cruelty, sin goods, and other activities deemed unethical. Unlike broad-market indices, it follows a values-based exclusion…
The Story in Brief
The National Stock Exchange launched the Nifty 500 Ahimsa Index, which excludes companies involved in animal cruelty, sin goods, and other activities deemed unethical. Unlike broad-market indices, it follows a values-based exclusion strategy, screening out firms in the 'orange' and 'red' bands as classified by the Ahimsagain Foundation. The index includes 326 companies from the Nifty 500, weighted by free-float market capitalisation, making it suitable for ETFs and passive investing.
The move reignites a centuries-old debate between Homo Oeconomicus, the rational wealth-maximiser, and Homo Ethicus, the values-driven investor. Academic research, including work by Hong and Kacperczyk on 'sin stocks', suggests that ethical screens reduce the investment universe, potentially lowering risk-adjusted returns. While ethical investing provides non-pecuniary utility, the index may sacrifice financial alpha, as higher demand for ethical stocks can inflate prices and depress future returns.
The Indian Opinion
The Nifty 500 Ahimsa Index revives an old debate on whether morality can coexist with market returns. Proponents see it as a way to align investments with values, but critics point to the economics of sin stocks and the costs of shrinking the investment universe. Retail investors may cheer the ethical screen, but they must ask if they are willing to forgo potential profits. At the end of the day, the index is a portfolio constraint, not a free lunch.
Source: thehindu.com
This story was synthesised by AI from the source linked above.
