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What are Blue Chip Companies?
Stock in a publicly traded company with a nationwide reputation for high quality, dependability, and the ability to create a profit in good and bad times is referred to as a “blue chip.”
With a big market value, strong fundamentals, and regular dividend payments, a blue chip stock is one of the most sought-after in the stock market. Small and mid-cap stocks tend to be more stable and less volatile than their larger counterparts. It’s easy to recognize a blue-chip company because of its extensive distribution network, which offers high-quality products and services across the country.
Hence, Big, well-established corporations with a long history of steady success are known as “blue chips.” These businesses have a good reputation, a lot of money (often no debt or very little debt), and can handle market downturns.
In their respective fields, most blue-chip corporations are market leaders. In India, blue-chip firms such as HDFC Bank, HUL, ITC, Asian Paints, and Maruti Suzuki are just some of the most well-known examples.
Why are they Known as Blue Chip?
The term “blue chip” is derived from the game of high-stakes poker, which is where the name originated. Depending on the color of a poker chip, it represents a different amount of money. White chips may only be worth $1 per chip, making them the least valuable. In terms of value, red chips may be worth as much as $5 each. The highest-value chip on the table is represented by blue color. Thus, the word was stolen from poker and used in the stock market.
A blue chip company is one that is well-known, well-established, and well-capitalized in the investment community. Such a corporation is regarded as a dominant player in its industry and produces dominant products or services. Companies with a long history of reliable revenue and steady growth are more likely to weather economic downturns. In addition to investors and aficionados, the general public is typically familiar with their names.
Why Invest in Blue Chip Companies?
A corporation with a long history of financial success will appeal to investors of all types. Even while blue-chip companies aren’t usually the most popular, their long-term goal is to make money for shareholders. Thus, for individuals who can persevere through both good and bad times, these are ideal investments. Because of their strong financial position, steady development, competent management team, well-known brand, and good name, they are able to stay afloat in tough economic times and industry trends.
As a general rule, Indian blue-chip firms have a market valuation of at least Rs 50,000 crores. The bluest of the blue chips are debt-free stocks. Blue-chip companies, on the other hand, have a lower and more stable debt-to-equity ratio than their peers. As previously said, blue-chip companies have a high return on equity (ROE), a high coverage ratio of interest, as well as a low price-to-revenue ratio.
It is wise to put your money into blue-chip stocks since they represent an investment in a company with a proven track record of success and the potential to develop in the future. These businesses are critical to the overall development of the country and to the prosperity of the country itself. Because of this, these blue-chip companies have low risk and can still deliver steady gains in the future.
Features of Blue Chip Companies:
Blue Chip companies are preferred by all Investors because they are the best among their peers. The following are some of the features of a Blue Chip Company:
To put it another way, a blue-chip stock’s market capitalization is more than 50,000 crores, which makes them a large organization. The state bank of India, Bharti Airtel, Tata Consulting Services, Reliance Industries, Coal India, HDFC, ITC, Infosys, ICICI Bank, ONGC, GAIL, and Sun Pharma are India’s top blue-chip firms by market value.
Long-term investors may consider investing in blue-chip firms because of their steady, albeit sluggish, growth. In order to make a healthy return on their retirement funds, investors prefer to include blue-chip corporations in their portfolios.
All businesses must have a strong management team in order to develop and thrive. There is a lot of knowledge and expertise among the CFO, CEO, and board members of blue-chip companies.
For long-term and cautious investors, blue-chip stocks are the most reliable when it comes to solid returns. Blue chip stocks may not produce as much of a return as smaller and mid-cap corporations, but they are more stable and yield a lower return than other equities.
In comparison to mid-and small-cap companies, blue-chip stocks are less risky due to their stable financial standing, superior management, and lower level of debt. In times of market volatility or correction, blue-chip businesses have little influence and are usually debt-free or have little debt since they always have sufficient resources to clear their debt.
Shareholders of blue-chip firms receive quarterly or annual dividends. In some cases, companies may choose to withhold a portion of their profits rather than distribute them as dividends in order to fund the expansion or growth of their business. They reward their shareholders with dividends based on the profits they’ve achieved.
Advantages of Investing in a Blue Chip Company:
As said earlier, Blue chip companies provide a sense of stability in your portfolio. They are large entities that have been through various economic cycles. They can withstand external pressures much better than any others. Hence, when at times of economic slowdown, these blue chip companies will not only sustain but thrive in the situation.
Easy to Invest
We know how hectic it can be when it comes to selecting a stock and investing our hard-earned money. But, when it comes to blue chip companies since they have a proven track record, they are easy to find and worth your investment.
Almost all the blue chip companies provide dividends. Then have a cash reserve large enough to provide dividends even at times of severe cash crisis in the economy. Any investor holding onto his investment in blue chip companies for a long time is definitely benefitting from the amply dividend amount he/she is getting.
Disadvantages of Investing in a Blue Chip Company:
Blue chip companies are expensive not only in terms of their per share price (which will be in thousands). But also in terms of valuation. Blue chip companies are a preferred investment choice for many. Hence, the demand for their share is ever existing. With such demand comes a high price of valuation.
Blue Chip companies are large enough to say that they have reached a saturation point. A point in time post which, if they do not innovate, the company either stagnates or starts declining.
Blue Chip companies provide low-risk low return-type investments. Since they are widely known companies with large market capitalization. Their share price will not be volatile in nature. So, they do not give unexpected high returns.
Top 15 Blue Chip Companies in India:
Here’s a list of the 15 best blue chip companies. Ranked by their market capitalization.
|Sl.No||Company Name||CMP (In Rs.)||P/E Ratio||EV / EBITDA||PEG Ratio||Market Cap.||Dividend Yield|
|1||Reliance Industries Ltd||2,401.80||27.70||14.88||1.92||16,24,985.78||0.29|
|2||Tata Consultancy Services Ltd||2,994.60||28.24||18.75||3.61||10,95,757.79||1.44|
|3||HDFC Bank Ltd||1,362.05||19.91||21.48||0.99||7,56,519.77||1.14|
|4||Hindustan Unilever Ltd||2,568.50||67.74||45.80||4.33||6,03,649.61||1.32|
|6||ICICI Bank Ltd||751.20||20.81||19.42||1.05||5,22,602.41||0.67|
|7||Housing Development Finance Corporation Ltd||2,216.10||17.79||16.22||1.16||4,01,863.61||1.35|
|8||Kotak Mahindra Bank Ltd||1,787.70||29.38||23.05||1.50||3,55,146.77||0.05|
|9||Asian Paints Ltd||2,978.15||92.70||55.38||9.55||2,85,614.90||0.64|
|10||Maruti Suzuki India Ltd||8,778.05||68.39||34.51||-8.45||2,65,337.66||0.68|
|11||Avenue Supermarts Ltd||3,926.80||124.74||74.99||4.84||2,54,462.17||-|
|12||Titan Company Ltd||2,189.70||87.76||55.90||3.75||1,94,302.64||0.34|
|13||Nestle India Ltd||18,771.50||78.06||48.79||4.30||1,80,923.70||1.07|
|14||Pidilite Industries Ltd||2,307.65||97.14||61.88||13.94||1,17,225.93||0.43|
|15||Bajaj Auto Ltd||3,913.35||20.87||16.09||3.56||1,13,324.52||3.58|
[Data based on figures as of 15-07-2022]
Since the March 2020 lows, the Indian equity markets have grown at an exponential rate, nearly doubling in value and now nearing all-time highs. Several mid-and small-cap stocks have evolved into multi-baggers, providing investors with several times their initial investment in the stock’s value.
Investing in blue-chip stocks may be a good option for risk-averse investors in India, given the current state of the equity markets.
Companies with a market capitalization of over INR 50,000 crores, excellent financials, strong management, minimum or no debt on the balance sheet, and a proven track record of sales distinguish blue-chip stocks. Because of the high quality of their products and services, these firms have significant value to the public’s awareness.
These blue-chip assets offer a lower risk profile with predictable returns, and they’ve already survived several downturns in the economy. These companies have also demonstrated their capacity to thrive and prosper in any market. People who want their money to grow at a steady rate should invest in blue-chip stocks, which have a lower risk profile.
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