"Foreign institutional investors (FIIs) are taking a neutral to negative outlook for global emerging markets including India," Vinod Sethi, managing director of Morgan Stanley Asset Management, which manages funds to the tune of $ 1.5 billion in Indian bourses said.

Sethi was addressing a seminar on capital markets organised by the Confederation of Indian Industry here.

India has already seen an outflow of over $ 400 million from the stock markets during 1998.

"1998 has been a loss year for India," Sethi said adding much depends on how the country manages various macroeconomic issues including keeping the fiscal deficit low in this financial year to lure FIIs back into the domestic stock market.

He, however, anticipated Indian stock markets to turn around in three years time. "Ourconservative estimate is that stock markets would start looking up in three years time," he said in reply to a question.

Morgan Stanley trading constitutes about 15-20 per cent of total FII activity in India, a company official said.

In an apparent reference to the on-going controversy of ACC's proposal to raise Tata's stake in the cement major, Sethi said "in general" he did not approve of the method.

Tatas propose to increase their stake in ACC to 20 per cent through a preferential issue of shares.

Vice-chairman of Kotak Mahindra Finance Limited, Uday Kotak said while deciding on a preferential issue, the board should take into consideration what was best for the company and not the promoter.

"This is something the regulator has to look into more closely," Kotak who was chairing the session said adding the board of the company should work truly independently while taking the crucial decision.

"The question really is whether the company has acted independently while deciding on the preferentialshares," he said without naming ACC.

The preferential share issue guidelines are clearly dilutive, Kotak said.