What will next 10 years bring for you?

Tue, 22 Dec Pre-Open

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The past ten years have been like a lost decade for the US stockmarket investors. The Dow Jones is nearly at the same level as it was in December 1999. And since inflation has averaged around 2.5% per year during this decade, the real returns for investors in US stocks has been negative.

So much for the idea of 'long term investing'? And just what happened to the philosophy of 'stocks for the long run'?

US investors must now be a disillusioned lot, ruing at their experience of the past ten year. And worrying as to what the next ten years might bring. And they can't be blamed for their worries! After all, the US (and world) markets have seen two major bubbles over the past decade and going by what the Fed's printing presses are doing now, might see another bubble pretty soon.

What that bubble could be and in which asset class is though hard to say with clarity as of now. Could it be gold? Or emerging market stocks? Or for that matter, US bonds?

Different noted experts have different views on all these assets. And the view ranges from extremely positive to awfully negative! Some expect gold and stocks to rise in 2010 as well on the back of unlimited money 'manufactured' by central banks worldwide! On the other hand, there are a few doomsayers who believe that all their excess cash will sooner than later lead to hyperinflation. This will then lead to rising interest rates and subsequently a crash in asset prices.

2010 might well see all of this! Or it might not, as we are still not sure when the central banks will turn their cash-taps off?

Anyways, for you - the investor in Indian stocks - 2010 might see a continuation in the rise of the Sensex. But it is difficult to see a repeat of 2009, wherein the index has already notched gains of over 70%. 2010 will begin with the Sensex's P/E valuation at already a high level of around 21 times. Compares this with the P/E of just around 12 times at the start of 2009 and you will know why you need to lower your expectations from 2010.

One factor however, that will largely decide the movement of markets in the coming year will be - how Indian companies fare in terms of their financial performance. While we have already seen some industries (like commodities and auto) coming back to near normalcy in 2009, sustenance of such performance will be the key in 2010.

And as for the coming decade for Indian investors, we believe it will pay off handsomely to stay invested in quality stocks. Given that India is at the cusp of a major economic shift (and for the better), the coming decade holds a lot of promise for companies and investors. The key idea however will be to identify the right kinds of businesses and management - that have the capability to grow strongly and profitably over the next ten years though without compromising on their ethics and sound business principles.