Why a stock falls out of the Shariah list

Twice a year a list is recalculated and some companies quietly leave it. No scandal, no announcement from the company, often no change in the business at all. A balance sheet moved a few percentage points and the stock is no longer Shariah-compliant.

For a large share of Pakistani investors that is not a technicality. It decides whether they can hold the stock.

Six screens, and only one of them is famous

Shariah screening in Pakistan runs on six tests. A company must pass all of them.

The business itself. The company's core activity cannot be in a prohibited area: conventional banking and insurance, alcohol, tobacco, pork, gambling, conventional entertainment, and so on. This is the screen everyone knows, and it is almost never the one that causes a surprise, because a company's industry does not change between review periods.

The other five are financial ratios, and these are the ones that move.

Interest-bearing debt to total assets. This was the big one in 2026 — more below.

Non-compliant investments to total assets, capped at 33%.

Non-compliant income to total revenue, capped at 5%. Interest earned on a conventional deposit account lands here, which is why a perfectly Islamic business can fail on sloppy treasury management.

Illiquid assets to total assets, which must be at least 25%. This one runs the opposite way to the others: a company must have enough real, tangible assets rather than being a pile of receivables.

Net liquid assets versus share price. The market price per share must be at least the net liquid assets per share.

The threshold that moved in February 2026

The debt screen used to allow interest-bearing debt up to 37% of total assets. In February 2026 the SECP cut that to 33%.

Four percentage points sounds small. It is not, for a leveraged company sitting near the old line. A business with debt at 35% of assets was compliant one review and non-compliant the next, having borrowed nothing extra and repaid nothing.

If you hold leveraged names — cement, steel, textiles, anything that funded a capacity expansion — this is worth checking directly rather than assuming last year's status still holds.

Not every list uses the same rule

Here is the part that causes arguments. Meezan's own screening still applies the 37% debt threshold, while the SECP-driven screening used for the KMI indices applies 33%.

So a stock can genuinely be described as Shariah-compliant by one credible Pakistani source and non-compliant by another, on the same day, with neither of them being wrong. They are answering under different rulebooks.

When a screen tells you a stock is compliant, the useful follow-up question is compliant under which standard. Our own data stores the KMI All Share status, which is the SECP-aligned one, and it is labelled as such rather than as a generic "halal" flag — because that word would be doing work the data cannot support.

What the index membership actually means for a price

The KMI All Share carries a few hundred constituents; the KMI 30 is the concentrated version. Islamic mutual funds, pension funds and a large pool of retail money are mandated to hold compliant stocks only.

That means a deletion is not just a label change. It is a forced seller appearing. Funds that track or screen against the list have to reduce, and they have a deadline. An addition works the same way in reverse.

This is one of the few genuinely predictable flow events on the exchange, because the review dates are known in advance and the ratios are computable from published accounts before the announcement lands.

The practical version

Before you rely on a compliance label:

• Check when it was last reviewed. A status from before the February 2026 change may have been computed under 37%.
• Check which standard produced it.
• If the company is leveraged, look at interest-bearing debt over total assets yourself. It is in the balance sheet, and it is the ratio most likely to push a stock over the line.

The business-activity screen almost never changes. The ratios change every time the accounts do.

This is a description of how the screening works, not a religious ruling and not financial advice. For a determination on a specific holding, consult a qualified Shariah advisor.