Be bullish on India. Be cautiously optimistic on Indian stocks.

livemint.com:

technology companies in 2021 and 2022 decimated valuations of companies such as Alibaba and Tencent. Throw into this mix a host of poor policy decisions (in real estate for instance) and Xi’s desire to grab. The result is that China is increasingly becoming a pariah for global businesses and investors alike.

This has only worsened the situation. None of these things seemed likely to happen at the start of this century. But yet they happened.

Now, it’s not my case that the same scenario will play out in India. In fact, over the same period, in spite of various challenges, the Indian stock markets have grown by well over 20x over this time period, generating massive wealth. My limited point here is that the future, no matter how bright it looks, no matter how well it turns out, could still deliver disappointing stock market returns.

That’s because there are unforeseen risks that could play out in the future. Or perhaps the stock markets today have already discounted much of the future profits, leaving little on the table for future returns. Having said this, there’s a proven way to deal with this uncertainty – the right asset allocation.

By this I mean… Allocating well across various asset classes like real estate, gold, bonds, stocks and cash… And with stocks in particular, allocating well to various types of stocks (small cap, mid cap and large cap) and sectors, and giving them individual weightages. In my conversations with investors over the years, few spent time getting their asset allocation right. For most, all the focus was on stocks – usually small caps.

This approach works wonders in a rising market. But when things do not work out, as we saw in the case of China, the results could be disappointing. In my view, a