Investment for the future

My friend Sam and I were talking yesterday about the prognosis for the stock markets and economies in general. Both Sam and I have been investing in the Indian market for quite a few years now, and I have also been into the rest of the world markets over the last 6 to 7 years.
I had quit the European REIT maket in 2007 , the very same day the first hedge fund of Bear Stearns collapsed, because I thought trouble was brewing. It runed out to be a very timely call, in hindsight. Over the next 2 to 3 months, I had virtually withdrawn from the rest of the markets, including India. By end of 2007 , I was completely in cash, save for some token investments in Reliance and L&T in India. Again, in hindsight, this has turned out to be a fortuitous move.

We know the mess we are in right now. I am reminded of an episode in the Mahabharatha, where Yudhistira, after a hard day's fight in Kuruskshetra , is brooding over the thousands who had been left dead. In walks sage Vyasa, and Yudhistira, the righteous one that he is, tells him that he just feels like running away from the battlefiled, jsut does not want to fight anymore and wants to take Sanyasa.

Vyasa replies " no way, my son! In fact, this battle will not move on without you, and will be fought with you right in the centre, and you, like any of us, is unfotrunately destined to oversee this bloodbath haplessly, that is is your fate".

Fast forward to 2008 - I put myself ( and the rest of us poor denizens of the world) in the place of Yudhistira, and US Treasury Secy Hank Paulson in the place of sage Vyasa!!! I am awed at the uncanny similarities!!!!

Perhaps we too can do nothing but to see the financial world around us collapse.
Into the future now. I have observed that historically, the India index in a bear market has fallen to about 2/3rds of it's peak value before fighting back over 2/3 years. Going by this precendent, given that the Sensex had hit 21000+ not so long ago, my logic above would lead us to a 7000+ figure for the sensex as a worst case scenario. Of course no one seems to know what had happened to the Bombay market during the 1929 days.

People say that this round of recession is going to be long and deep. I think so too, but do not know, frankly speaking. Given that the Sensex had dropped close to 50% already and given that no one really knows how far it could, I am mulling the RSP or SIP strategy, to invest in, say Rs10,000 every week for the next 1 year in just Reliance and L&T shares, possibly in equal measure.

L&T has closed around Rs.1000 last weekend. Assuming 1.5% drop in the share value, on an average , over the next 52 weeks, the average of cost of possession would be Rs. 687, with a low value of Rs.456 ... to me, this could possibly be the worst case scenario ( another drop in the index by about 50% from where it is today)... which then means my avg cost would be at a 50% premium... but then, I would have had a big chunk of investment over this period on one of the best possible stocks in India... and given that indices tned to rise over 300% in a 5 to 7 year period in India, my invests could still yield me more than 200% in that period... in a fool-proof way....

Any thoughts on this? - and any loopholes in this logic.. over and above uncertainty that exists today, and the vagaries of the stock market.

My personal pick in terms of sector right now is the Sugar sector - completely contrarian... but I believe that over the next 3 to 5 years, this sector could get excellent returns... my pick would be Shree Renuka Sugars and Bajaj Hindustan. I plan to take positions in this sector gradually over time.