The new index comprises the largest 500 companies in the BSE, out of more than 5,000 listed, which fit Islamic finance principles such as bans on investing in alcohol, tobacco and gambling-related businesses.
The country's first Islamic index was launched in 2010, also by the BSE, tracking the 50 largest and most liquid stocks. The Mumbai exchange had a total market capitalisation of $1.32 trillion as of January 2013.
India's Islamic banking industry has progressed slowly because banking rules require lenders to declare the rates of interest they charge customers, putting it at odds with Islamic banks which base their products on profit rates instead.
In order to cater to an estimated 177 million Muslims in India, the largest Muslim minority population in the world, the industry is hoping to develop investment products that work around this requirement, but political and legal obstacles mean progress has been slow.
Copyright @ Thomson Reuters 2013