Top 10 quality stocks from the Nifty 200 universe

It has been observed that quality stocks usually outperform major indices like Nifty 50 and Nifty 500. In this post, we would be sharing the top 10 good-quality stocks from the Nifty 200 TRI.

If we look at the historical data, then quality stocks have outperformed Nifty 50, Nifty 200 and Nifty 500 Total Returns Index (TRI). When we say quality stocks, we mean Nifty 200 Quality 30 TRI.  

The Nifty 200 Quality 30 TRI includes the top 30 companies from its parent Nifty 200 TRI, selected based on their ‘quality’ scores. The quality score for each company is determined based on return on equity (ROE), financial leverage (Debt/Equity Ratio) and earning (EPS) growth variability analysed during the previous 5 years. Moreover, the stock weight is capped at 5 per cent.  

In order to understand the performance of Nifty 200 Quality 30 TRI over the above-mentioned indices, we have calculated their five-year rolling returns. The period of study is from April 1, 2005, to November 30, 2021. 

The above graph shows the long-term performance in terms of five-year rolling returns of Nifty 200 Quality 30 TRI along with other major indices such as Nifty 50 TRI, Nifty 200 TRI and Nifty 500 TRI. As you might have observed, Nifty 200 Quality 30 TRI outperformed other indices. Having said that, the alpha that it generated over other indices in past has now contracted.  

However, if you notice that the Nifty 200 Quality 30 TRI in any five years never gave negative returns. The minimum returns that it generated in any five-year period were 1.3 per cent, whereas Nifty 50 TRI, Nifty 200 TRI and Nifty 500 TRI gave negative returns of 1 per cent, 1.6 per cent and 1.8 per cent, respectively. In the overall period of study, we can clearly see that the maximum returns are generated by Nifty 200 Quality 30 TRI over other indices. But how did it perform in the recently witnessed rally?  

To understand the same, we calculated the maximum returns that it generated from March 2020 up to November 2021. So, in the said period, Nifty 200 Quality 30 TRI generated 20.03 per cent returns as against Nifty 50 TRI, Nifty 200 TRI and Nifty 500 TRI that generated returns of 19.14 per cent, 19.12 per cent and 19.36 per cent, respectively. Hence, we can conclude that the quality stocks do outperform the major indices. 

Here is the list of the top 10 good-quality stocks from the Nifty 200 universe.