sensex: where are we heading?

sensex has reached dizzy heights. some call this the 'last leg' of the 'bull run'. well that has been said many times on the previous life-time highs. i thought of checking some world indices and how they have behaved in the bull or bear phases and how long these phases were. i think the history of japanese markets can provide some answers.

the japanese nikkei was 10000 in 1984 and touched 38000 in 1990 (i.e. 400% returns in 6 years). this proves that the current dizzy heights are nothing compared to the nikkei run-up in 1990.
from there it fell to 18000 in 1993 (i.e. lost more than 50% in 3 years)...
jumped to 20000+ 5 times between 1993 to 2000,
fell to 7000 in 2003 (i.e. lost more than 50-65% in 10 years)
and is 17200+ (i.e. gained more than 150% in 3 years) now.

lets check the indian sensex
4000 in 1997 to 3000 in 1999 (i.e. 25% loss in 2 years)
3000 to 6000 in 2000 (i.e. 100% gain in 1 year)
6000 to 3000 in 2001 (i.e. 50% loss in 1 year)
3000 to 6000 in 2004 (i.e. 100% gain in 3 years)
6000 to 11600 in 2006 (i.e. 100% gain in 2 years)

i am not sure whether we are in a similar situation as japan in 1980's - world was in awe of japanese manufacturing and we were in school then :-). but somehow i feel there is a semblance with the indian outsourcing story (not just limited to IT, but also in motor parts, call centres, and a lot others and in addition there are all the other things about the huge middle class consumers and increase in demand for everything imaginable).

i will discuss the american indices later.

over the last 10 years (1996-2006) sensex has already given a return of 300%. another 100% gain and it will take the sensex to 22000. but the point i would like to make is you cannot rule out sensex touching 6000-8000 again. and at such levels you should have cash to invest, so dont allocate more than 25% in equity. but just don't wait on the sidelines - you have to have invested 15% in equity at all the times [why would you like to stay out in a scenario like the japanese nikkei moving from 10000 to 38000 or 7000 to 17000). and you can ask me why would you want to be in when it goes from 38000 to 7000, well the answer is 'to buy' of course.