[sarwesh]

Stock researcher Ashit Kothari is living the Indian growth story he spends his days analyzing.

Step into the hallway outside his fourth-floor office and find workers with head wraps and slippers installing an air-conditioning system for the building. On the ground floor, find a directory of employee-recruiting and computer-software companies that are rapidly filling the floors. While vendors sell fruit and Chinese food at bustling stalls outside, drive a few minutes to the sleek Asian Heart Institute, where foreigners are flocking for surgeries.

Mr. Kothari, 40 years old, is on the lookout for Indian stocks that can benefit from all this change -- stocks that might find themselves in the portfolios of U.S. mutual-fund investors.

Last year, India's benchmark stock-market index finished up 47 percent, on top of a 41 percent gain in 2005, and it is soaring to new records this year. Emerging-markets mutual funds have been one of the U.S. mutual-fund industry's fastest-growing segments, and Indian stocks are well represented in many of these portfolios. But Mr. Kothari, who works for the $1 billion Eaton Vance Greater India Fund, is one of surprisingly few stock pickers on the ground full time to assess companies across this vast country for American investors.

The emerging-markets mutual-funds category totals about 85 funds, buoyed by more than $8 billion in net new money last year, according to fund researcher Morningstar Inc. More than a dozen of these funds were launched since 2005, including some in a niche known as the BRICs, funds focused on Brazil, Russia, India and China.

In focusing exclusively on India, the nearly 13-year-old Eaton Vance fund is something of a rarity. Offerings from Amvescap PLC's PowerShares unit and JPMorgan Funds are poised to join this club.

As more U.S. savers seek to get in on the India action, fund companies are grappling with how to staff the vehicles for their investment. Prices of many Indian shares have started to approach valuations seen in developed countries, and some analysts think stock picking will be more crucial to success than in the past, when many stocks rose with the market's momentum.

Many U.S. fund firms are content making stock picks from afar, sending staff in for occasional visits. Some prefer the better oversight they have when portfolio managers are based in the U.S. or in the offices of an investment firm under contract in places like Hong Kong. In particular, many fund companies like their managers' trades to go through a major office, where conflict-of-interest or other quality controls can be better monitored.

Some of the out-of-country arrangements are prompted by restrictions on foreign institutional investors by Indian securities regulators. Some funds say keeping offices outside India also can help limit how much they are subject to potential Indian taxes on fund-management companies. Last year, the Investment Company Institute, the U.S. fund industry's trade group, sent a letter to Indian tax authorities discouraging the imposition of such taxes.

The portfolio manager for the Eaton Vance fund is among those based in Hong Kong. He is Samir Mehta, 39, for Lloyd George Management, a Hong Kong firm that serves as investment adviser, while a unit of Eaton Vance Corp., of Boston, handles distribution. The $920 million Morgan Stanley India Investment Fund, a closed-end fund, has portfolio managers in New York and Singapore and a "fairly lean team" in India, said Sridhar Sivaram, an executive director for the fund.

The $175 million-plus Templeton BRIC Fund from Franklin Templeton Investments uses a staff of 20 investment professionals across emerging markets, including India, for extra research beyond what lead manager Mark Mobius does.

Matthews India Fund, which has ramped up to $670 million of assets under management since its October 2005 launch, keeps its entire staff in San Francisco.

"The thinking there is, we lose out on the day-to-day news flow and corporate access, (but) pick up a bit more objectivity and filter out some of the short-term noise," said Andrew Foster, a co-manager, who travels to India every few months to check on holdings, usually at different times from fellow manager Sharat Shroff.

Finding local staff also can be difficult: The boom in India's own fund industry is creating a "huge, huge scarcity of fund managers," especially those with several years of experience, said Mr. Kothari, noting he may need a second analyst this year.

The Indian mutual-fund industry is flourishing as investors shift money out of traditional investments like gold and bank deposits and into the stock market. Drive through Mumbai and giant billboards advertising new funds blanket the highway. "Be a part of Indian Infrastructure's growth potential," reads a sign for Tata Infrastructure Fund, alongside ads for Bollywood movies and cellphones.

Fidelity International Ltd. has launched six such mutual funds for Indians since 2005, and local products like Reliance Equity Fund have drawn the rupee equivalent of more than a billion dollars since launching last year.

Even for a manager on the ground in India, there are challenges in following stocks in a nation of more than one billion people covering over one million square miles.

Some industries are developing rapidly, and "every time a new sector comes up, you can't just run here and there," said Mr. Kothari, a former chemical engineer who has worked in the investment-management business for more than 15 years, initially specializing in industries like pharmaceuticals and chemicals.

Last year, Indian textile companies were hot. More recently the Eaton Vance fund has bought into the construction industry, which is benefiting from bridge and road expansions in cities like Mumbai, as well as oil and technology stocks. It is concentrated in about 30 to 40 stocks.

The fund averaged a return of nearly 40 percent a year over the past five years through Jan. 31, putting it at the top of Morningstar's "Pacific Asia ex-Japan" stock-fund category for the period. The ride hasn't been smooth: The fund returned 36 percent last year, 45 percent in 2005 and 114 percent in 2003, but lost almost 40 percent in 2000. Its expense ratio of 2.35 percent for Class A shares is about a percentage point higher than the average of U.S. domestic stock funds, but in line with other emerging-markets funds.

Mr. Mehta visits India a few times a year and speaks to Mr. Kothari almost daily to discuss trades. Their research focuses on "defensive elements" as the fund doesn't want to "own mistakes," said Mr. Mehta.

On one three-day road trip last year, Messrs. Mehta and Kothari traveled from Mumbai to the nearby town of Pune to check on some holdings and potential investments. On the way, they quizzed strangers like a bridge contractor and farmer about their businesses. They visited Bajaj Auto Ltd. and Tata Motors Ltd. to meet plant managers and to see their vehicle-manufacturing facilities. They went to a wine vineyard and a mall in the small town of Nasik, where they watched customers snatch up trendy clothes and household items at Pantaloon Retail (India) Ltd.

On another trip, to Delhi, they met with an official with the Ministry of Railways. They drove to Jaipur on new highways and visited residences sprouting in outsourcing hub Gurgaon. The high-rise buildings were being built by real-estate company DLF Ltd., which is planning what could be the largest initial public offering in India this year.

They also visited auto-parts supplier Balkrishna Tyres and a basmati rice farmhouse, where they watched farmers trade their goods.