The report on the first quarter peformance of Morgan Stanley's India dedicated fund, Morgan Stanley India Investment Fund, states that the change in sentiment has come from the gruelling bear market and recession in the real economy of the past 30 months that has forced corporates to get in very lean shape.

Stanley points out that the Indian stock market is on the edge of breaking out of the bearish market, which is into its fifth year now. The real story of year-to-date in the Indian stock markets has been the performance of stocksoutside the ambit of information technology, pharma and consumer goods, adds Morgan. Even in the most run-down sectors, certain large-cap stocks have managed to rise anywhere between 50-500 per cent over the past quarter.

``The market is being held back by some moribund macro economy but economy and politics are expected to move in a sync in the right direction in the next few months,'' points out Michael F Klein, president and director, Morgan Stanley India Investment Fund. The commentary on the Indian bourses points out that the market breadth has widened as number of stocks traded this year has more than doubled from 900 to 2000. ``There is a growing perception that things have gotten as bad as they can possibly get and hence, risks on the economic side have to be on the upside. The rally in stocks outisde the famed sectors has really been reflexive in nature with stocks bouncing back on marginal buying,'' adds the report.

For the first quarter ended March 31, 1999, the India dedicated fund generated atotal return of 36.89 per cent against 21.68 per cent for the dollar-adjusted Bombay Stock Exchange Sensitive Index. Since inception in February, 1994, the fund has generated a negative return of 9.43 per cent.

While equities constitute 98.6 per cent of the total investments, the top ten holdings account for 58.7 per cent of the total investments. These include Infosys, BHEL, Hero Honda, Zee Telefilms, Punjab Tractors, ITC, Novartis, Tata Tea and Telco. The second quarter ending June 30, 1999 is expected to be better for the fund since a majority of these stocks have been in the forefront of the current rise in indices.

The fund holds the largest investment block in electronics, followed by auto, health, energy equipment and beverages and tobacco . The investment managers have resorted to buyback of fund's shares from the secondary market to narrow the gap between NAV and market price. The NAV of the fund had moved up from $9.19 on December 31, 1998, to $12.58 on March 31, 1999.