A “Nifty Fifty” group of outstanding companies, with strong links to emerging market economies, could outperform broader stock market indices at a time of sluggish returns in much the same way that premium US firms such as IBM and General Electric did in the 1960s and early 1970s, Morgan Stanley analysts say.

The risks of debt defaults in the eurozone and weak economic growth may dominate investors’ thoughts, but a modest returns outlook puts even more pressure on people to discover stand-out companies that can achieve superior returns and do so consistently. From 1964 to 1972, 50 of the top US firms outperformed the S&P 500 Index of US stocks by 189 per cent, equating to an annualised outperformance of 15 per cent, Morgan Stanley said.

Such a superior collection of equities is most likely to be unearthed among businesses with strong links to fast-growing economies in Asia and other emergent regions, Morgan Stanley said in a note about European equities.

“Volatile, range-trading markets mean macro investing and market timing will remain a key focus for many investors. However, investors may be better served by adopting a longer-term investment horizon and directing efforts at identifying stocks or groups of stocks with the potential to outperform over a multi-year period,” the bank said.

Morgan Stanley predicts that European stocks are stuck in a secular bear market and likely to be stuck in a range for some time.

“Conditions are ripe for genuine growth stocks to flourish. When screening for such stocks, qualities to look for could include innovation, emerging technologies, dominant franchises enabling pricing power and/or market share gains, or exposure to higher growth markets,” the bank said.

Morgan Stanley said it prefers to hold defensive equities in general but is using market rallies as a chance to add in “quality cyclicals” to its portfolios.

One of the clearest markers for a potential new “Nifty Fifty” stock is exposure to emerging markets; the bank examined firms that generate at least 40 per cent of revenues from these places. Examples include Nokia, International Power, Intertek, International Power, Invensys and Volkswagen.