A SURPRISING phenomenon has begun manifesting itself on the Indian capital markets. Even as more and more foreign institutional investors (FIIs) are considering India as the best place to invest in, Indian captains of industry, and even public sector undertakings, are venturing west in search of funds. Morgan Stanley Asset Management chairman Barton Biggs remains bullish about India, considering the country ''the most exciting market among developing nations'', followed by China and Mexico. Mr Biggs has said his company will bring US$400 million into India within the next one year - in addition to the $200 million already managed by the firm. The Morgan Stanley Mutual Fund will come out in the first week of December with a four billion rupee (about HK$800 million) close-ended mutual fund, to be named the Morgan Stanley Growth Fund 1993. It proposes to divide the fund into 400 million units of 10 rupees each. The minimum subscription for the fund, which matures in March 31, 2004, is 500 units, equivalent to 5,000 rupees. The fund, to be targeted at the upper end of the market, with a focus on FIIs, non-resident Indians, companies, trusts, corporate bodies and associations, will be listed on five Indian stock exchanges. Resident individuals are also eligible to subscribe. Similarly, Alliance Capital is set to launch its $100 million India Liberalisation Fund, which is meant exclusively for foreign investors. Minimum subscription to the open-ended capital growth fund will be $10,000. With interest rates in India exceedingly high, Indian businessmen are capitalising on the current wave of interest in India by hawking medium-sized Euro-issues. Some, like the Essar shipping and steel group, are even looking towards the American market for funds. An indication of the excellent response to Indian corporate Euro-issues can be seen from Jindal Strips which, during its road shows alone, secured bookings in excess of $450 million against its offer of $60 million. The Euro-issue by the Jindal steel group is the fourth such issue in recent months and was lead managed by Kleinwort Benson. Each of the three earlier ones had thumping success. Reliance Industries offered $125 million in convertible bonds and was swamped with $1.5 billion, an oversubscription of 12 times. The $100 million Euro-issue by Shipping Credit and Investment Corp of India (SCICI) was oversubscribed 10 times, and the $92 million ITC issue nine times. This wave of success has induced even government-owned undertakings to float Euro-issues. Public sector Videsh Sanchar Nigam, which deals with overseas communications, has proposed the largest Euro-issue of any Indian company - $500 million. The issue is scheduled for January. Prior to the Euro-issue, Videsh Sanchar will also float a domestic public issue which will bring the Government's holding down to 49 per cent. The public issue of 160 million rupees will form the second instalment of shares to be off-loaded in the domestic market, following the earlier disinvestment of 120 million rupees. The money raised from both the public issue and the Euro-issue will be invested in the expansion of specialised services such as mobile phones, electronic data interchange (EDI) and business services such as E-mail, video conferencing and globally managed data services. The company has also invested $100 million in laying a submarine cable from Bombay to Marseilles, France, and from Bombay to Singapore. The entire link will be available to customers from June 1994, putting India into a round-the-clock global digital link for both business data and other services. Meanwhile, there are some fears that the wrong type of Indian company is approaching the international market for funds. Tata Iron and Steel (TISCO), Essar Gujarat, Oil and Natural Gas Commission, Southern Petrochemicals and Grasim are some. They are all dinosaurs and not many are competitive in the marketplace. The criteria most fund management firms would look for are three - the product should be internationally competitive so that it can be exported, the firm should be able to stand on its own feet and not because of political favours, and it should have a technological edge in its specific industry. If one accepts these criteria, it would seem that of all the Indian firms queuing up to offer global depositary receipts, only Bombay Dyeing and Arvind Mills fit the bill. Competition from China and other emerging markets could quickly snatch interest away from India, particularly as doubts continue to persist over India's political stability and economic growth. Poking fun at an article describing India as ''the biggest tiger of them all'', a recent Lehman Brothers report described the country's economic performance as ''more like an elephant on an oil slick than a tiger''.