There's conviction on good bottom up stories and potential for the growth cycle to improve, but stratospheric valuations are a put-off. Trapped domestic capital markets liquidity with no alternative but to enter equities is being blamed, though we pointed out that new paper stock is helping to improve absorptive capacity. The discussion then turned to the need for more capital account openess so that price discovery converges with regional valuation metrics. Domestic mutual funds should be allowed to invest abroad and simultaneously raise FII limits in debt so that capital account flows are not one way.

On the positive side, fall in the cost of equity capital has allowed many corporates to repair their balance sheets and shore up funds for capex. Then, discussions turned to capital allocation performance of various corporates. This is where FIIs were lamenting about the fact that despite our comparative advantage in services, we have not built global product platforms or large internet giants like in China and the US. Our businesses, it was said, simply don't have the DNA for long-term R&D and innovation. Given this, the high valuations in some pockets are making investors question implied growth rates and terminal values for those businesses.

Finally, Gujarat elections were not on the radar of long only investors. The possibility of a scrape through victory and its impact on markets were a concern for India only funds with daily NAVs to protect.