WITH China reverting to tomorrow's equity story, Hong Kong's fund managers are now looking for today's market. Liberalisation of India's economy has seen a clutch of funds launched to take advantage of what the managers believe is the country's ability to rise above religious strife, a receding foreign exchange crisis, state-directed industry, and the aftermath of a stock exchange scandal which is still reverberating around the market and parliament. India's economy is now matching the pace of Southeast Asian countries. Partly through its own efforts, and partly through some hefty nudges from the IMF and World Bank, the nation now looks to be on a steady and sustainable growth path. The current account deficit is down from 2.8 per cent of GDP in 1990 to one per cent last year, although it is forecast to rise to two per cent again next year. Exports are the key, and are climbing fast. After falling 1.5 per cent last year, thanks to the aftermath of the Gulf War and the implosion of the Soviet Union, export growth was three per cent last year. Now, with a heavy concentration on its strong manufacturing sector, India is aiming for 15 per cent growth in 1993-94, although the World Bank expects a hardly more conservative 13 per cent. The country is benefitting from exchange rate reforms which have improved its competitiveness with other Asian countries by 25 per cent. Where India's economic revolution scores over China is in its control of growth and inflation. GDP growth, which fell to 1.2 per cent in 1991, from 5.2 per cent, returned to an estimated 4.2 per cent in fiscal 1992 and a sustainable 5.5 per cent in this financial year. Inflation, which peaked about 14 per cent in the second quarter of fiscal 1991-92 is expected to average six per cent in 1992-93, thanks to conservative monetary polices. The scope for investing in India's potential through the stock markets is decades ahead of China. India has had a continuous history of stock trading going back to the opening of the Bombay exchange in 1875, and there are now more than 20 exchanges on which 7,000 public companies are traded - more than the combined sum of the rest of Asia. ''There is a lot of interest in India at the moment,'' said Tristan Clube, director of Martin Currie Investment Management, manager of the Indian Opportunities Fund, who sees more potential in the sub-continent than in China. While China has grown so much in the past years that they could expect a slower growth, the India market was at the bottom of the cycle and could expect faster growth. ''It is a generalisation that people have fallen in love with China. India is being neglected, which we think is unjustified,'' Mr Clube said. Dudley Howard, of Jardine Fleming, agrees. ''India is perhaps an even more exciting investment story than China. India's population is almost as big, its economy is almost as large, and India is a much more investor-friendly environment than China,'' hesaid. JF's India Pacific Trust, recently re-launched for a global audience and has responded with a sparkling performance. At Barclays de Zoete Wedd Investment Management, which runs the Bombay Fund, George Long believes India's changes have hardly been recognised. ''The country has gone through a fundamental restructuring. Basically, it went bust, and that brought the end of 45 years of Indian socialism,'' he said. ''Now it is becoming a free market, and in some ways it mirrors the developments in Latin America.'' London-based Russel Middleton, of Credit Lyonnais Securities, is watching the privatisation boom in India, which will add some further heavyweight stocks to the market. ''The government has some aggressive privatisation plans to list small portions of the myriad government corporates, from banks, through to utilities and manufacturing companies,'' he said. Plans include relaxing the government's hold on 244 centrally controlled, public-sector undertakings by floating off 49 per cent of their stock - including the Steel Authority of India, the Oil and Natural Gas Commission and Hindustan Machine Tool. If privatisation went according to plan, it would raise capitalisation of India's stock markets to more than $160 billion, according to Credit Lyonnais - making it the largest capital market in Asia, outside of Japan. With 15 million domestic investors, it would seem that the need to attract foreign money would be small. The government, however aims to attract overseas investors, introducing the foreign institutional investor (FII) programme. It has not been a success, according to Credit Lyonnais, being weighed down by ponderous application procedures and poor processing. This has improved over the past 12 months in reaction to an outcry from foreign investors. The Bombay scandal, although it did not cost foreign investors large amounts of money, tarnished the market's image, and 44 institutions which have obtained FII status have invested only $50 million. Now, observers expect the government to further ease the path for foreign investors. Top of the agenda, say analysts, should be a re-working of the harsh tax regime which subjects long-term gains, of a year or more, to 10 per cent capital gains tax, while all dividend or interest income suffers a 20 per cent withholding tax. Realising short-term gains will mean a tax charge of 30 per cent. Apart from bureaucracy and tax, the Indian stock market system, while streets ahead of the embryonic Chinese exchanges, has some technical pitfalls. Settlement is sluggish, trading can often be thin and the chase for liquidity is tiring. So far, the limited amount of outside interest has left research at a fairly primitive level. The top 50 blue chips all command hefty premiums over the market, and trade on price earnings ratios of 50 plus. The experts - of whom there are few, although the number is growing - seek out the second liners, where liquidity may be a problem, but withPEs of around 10, the search might be worthwhile. Analysts are forecasting corporate growth of around 25 per cent over the next 12 to 15 months.