"Indian equity markets are coming out of the bear phase and are showing signs of growth and expansion", Morgan Stanley Growth Fund says in its annual report for 1997-98. Justifying its prediction, Morgan Stanley says the current rally has been more widespread across a large number of stocks compared to similar situations in early 1996 and 1997.

It says the new government have succeeded in improving investors' confidence and the Indian stock market has risen almost 30 per cent since the beginning of 1998. Following increased confidence, domestic investors have stepped up their investments in equities, particularly in medium and small sized companies as these now represent attractive valuations. "Markets have registered a smart increase despite net outflows in early April from foreign investors," Morgan Stanleysaid.

However, it says that while all these emerging trends do provide a positive impetus, the growing budget deficit and the uncertainties about the monsoon are factors of concern. Commenting on the large number of takeover bids in recent past, Morgan Stanley says, "current cheap stocks prices have attracted a few hostile takeover of companies". It adds that hostile takeovers has led to speculative buying in several medium sized companies on expectations of further acquisitions activity.

Multinational companies are looking to increase their stake through open offers at prices higher than market and we expect these trends to continue in current fiscal and beyond.

Highlighting the reason for increasing takeover, Morgan Stanley says that the Indian corporates are increasingly becoming more focussed on their core competencies and selling out divisions that do not fit in their overall game plans. Following restructuring of business, Indian management is becoming more conscious of equity value and returns toshareholders instead of building assets, prevalent in early 1990s.

On the outlook of the Indian economy it says there are already some positive signs of economic turnaround with increase in credit growth by 16 per cent in second half of 1997-98 by banks and financial institutions. It further says the consumption of cement, steel, polyester has picked up in the second-half indicating revival of the economy.

But it says, pressure on interest rates is expected to continue following increasing fiscal deficit.