Top 20 quality stocks for your portfolio: Morgan Stanley

The Nifty rallied to its fresh 30-month high on Thursday, supported by strong buying in rate sensitive and oil & gas stocks. 

According to analysts, easier monetary policy adopted by global central banks sparked a global market rally, which has also led to a surge in foreign investmentsinto domestic markets. 

Foreign institutional investors (FIIs) were net buyers of Rs 1647 crores of stocks on Wednesday, marking their biggest single day of buying since Feb. 7, regulatory and provisional exchange data showed. 

Foreign investors have been net buyers of stocks for 20 consecutive sessions as of Tuesday, as per regulatory and exchange data, bringing their total for the year to Rs 1298 crores, Reuters reported. 

The 50-share Nifty index finally closed above its key psychological level of 6150 at 6,169.90, up 22.15 points or 0.38 per cent. It touched a high of 6,187.30 and a low of 6,128.25 in trade today. 

The Sensex ended at 20,247.33, up 34.37 points or 0.17 per cent. It touched a high of 20,326.48 and a low of 20,162.12 in trade today. 

"We are positive on the market for next one year. Investors are anticipating rate cuts due to easing inflation and that is driving the benchmarks. We are expecting the Reserve Bank of India to cut rates by 75 bps this fiscal," said Varun Goel, Head of PMS, Karvy Private Wealth. 

Goel sees the Sensex touching 25,000 in the next one year and advises investors with fresh money to buy pharmaceuticals, private sector banks and consumer stocks in the midcap space. He is bearish on real estate and infrastructure stocks. 

According to analysts, rate sensitive stocks can lead next leg of the rally and the CNX Bank Nifty can reach 13,300 in quick time. 

The recent headline inflation data came significantly lower at 4.89 per cent YoY for the month of April, while the retail (CPI) inflation remains significantly above WPI inflation, it too slowed in April. 

"We believe the WPI inflation report provides ample room for the RBI to cut policy rates at its 17 June policy meeting," global investment bank Barclays said in a report. 

While investors are looking for better stocks to invest, Morgan Stanley compiled India's top 20 quality stocks among top 200 companies on 14 parameters. 

The global investment bank has ranked companies in descending order of ROE, EPS, sales and dividend growth, and net margins; and in ascending order of the coefficient of variation of these metrics. 

"We also rank stocks in ascending order of trailing 10-year returns and in descending order of beta, debt-equity, and trading volumes," said the MS report. 

Some of these companies include Page Industries, BOSCH, CrisilBSE 0.58 %, ITCBSE -1.71 %, TCSBSE -1.02 % and Oil IndiaBSE 3.10 %. The global investment bank has tried to include companies which can give consistent returns for the next ten years. 

Top 20 quality stocks:

Company	YTD (%)	P/E	Div Yield (%)	FII stake - Q4 FY13 (%)	Average ROE	CAGR of EPS	Rank
Page Ind	15.51	41.55	0.94	19.15	10	20	1
BOSCH	-3.86	32.04	0.67	6.91	70	61	2
Infosys	2.25	14.39	1.78	40.52	20	66	3
Shriram City	6.79	13.88	0.62	25.21	86	48	4
CRISIL	-10.30	31.72	1.67	10.65	21	37	5
Bajaj Auto	-14.75	17.29	2.47	18.20	6	2	6
ITC	19.29	38.11	1.31	19.68	36	116	7
TCS	16.29	20.6	1.50	16.14	9	77	8
NMDC	-23.86	7.80	3.51	4.76	22	16	9
Oil India	24.33	10.67	6.89	7.32	98	143	10
Sun Pharma	31.55	35.76	0.44	22.61	28	44	11
Karur Vysya	-15.74	9.53	2.92	25.29	108	129	12
HDFC Bank	4.45	25.30	0.77	34.07	132	63	13
Asian Paints	9.10	41.54	0.95	19.44	14	69	14
STFC	1.75	11.96	0.91	49.45	69	47	15
Emami	14.18	32.90	1.17	14.46	52	38	16
M&M Fin	13.82	15.68	1.41	37.97	119	58	17
Nestle	-0.99	44.32	0.98	11.94	2	105	18
Cadila	-7.87	30.0	0.91	5.35	47	51	19
Wipro	-12.79	12.85	2.02	7.30	37	98	20

Source: Morgan Stanley/ETIGDatabase (CMP as on May 15)