Blue Chip Stocks are the high-quality stocks rather than high valued stocks.
Let me explain this with the real-life example of mine and my friend Amt. Amit and I are colleagues and both are investing in the stock market. He loves high-risk high return strategy while I prefer low risk and average returns. Here is the recent conversation between us, which inspire me to write this article on blue chip stocks in India.
Amit: I want to invest in direct equity, can you please suggest me any stock?
Me: Amit, the current market situation is volatile so I would prefer you to invest in blue chip stocks if at all you want to invest at this time.
Amit: Vishal, These blue-chip stocks are very slow and cannot generate high return delta for me. You know me, I will not invest in any stock which gives me returns less than 25% in a short term.
Me: Amit, I agree that these stocks are slow but they are consistent for the past many years. You know Rahul Dravid, he is known for his consistent performance. While there are other batsmen like Yuvraj who came and go like a flash.
Amit: But these blue-chip stocks have already reached its peak level, how much further they can go? chances are very less that these stocks will go further and set a new benchmark.
Me: Who says they have reached a peak point? Check the HDFC Bank, when it was at Rs. 1000 level everyone is thinking that it has reached its high. but look at the price today, it has crossed Rs. 2000 mark, and let me tell you it will go Rs. 3000 in the coming years.
These companies have great potential for growth even at these levels. They have strong financials and market share that they can go deep in width and breadth. They have deep pockets and can invest in research and development for new products and segments. Take another example of Bajaj Industries, they are market leaders in the two-wheeler market. Yet they have explored another segment of auto rickshaw, and they are doing good in that as well.
These companies are operating on the width and breadth strategy, if market width is achieved, they will look into the breadth of the market. They also have an advantage of their brand name. So whatever new product they introduced, they already have a certain percentage of the market share. These are the customer who is loyal to the brand name.
Amit: Ok! Ok! Vishal, I agree with you, now could you please tell me your so-called “blue chip stocks” in which I can invest for 1-2 years?
What are Blue Chip Stocks?
The word Blue Chip was founded by Oliver Gingold in the year 1923 when he wrote an article referring the word blue chip as stocks trading at a price higher than $200. Later on, people started using this word to relate high-quality stocks instead of high priced stocks.
Blue Chip stocks are not necessarily high market cap companies and are a part of the index. Though most of the blue-chip stocks are having high market capitalization and most of them are a part of the indexes.
Blue-chip stocks are well-established companies for many years. They have given a consistent performance in the past. Good brand name and dividend payout history. These companies can survive in an adverse market situation.
Few names of the blue-chip stocks in India are HDFC Bank, ITC, Maruti, TCS, Reliance Industries etc.
Read Also: Fundamental Analysis of the Company
Characteristics of Blue Chip Stocks
Below are the characteristics of blue-chip stocks in India.
- These companies are the market leader in their domain/segment
- These companies have a good financial background and can survive in the adverse market situation
- They are offering more than one product and have a wide customer base
- These companies are old and tested during the various market cycles
- They are paying a good dividend to their shareholders
Best Blue Chip Stocks in India
HDFC Bank Limited
The bank was incorporated in the year 1994 having its headquarter at Mumbai. HDFC Bank is India’s leading private sector bank. It is offering banking services, loans, credit cards, personal loan, auto loan. It has 88253 permanent employees as on 9th October 2018 across India. It also has a presence in Behrin, Hong Kong and Dubai. HDFC Bank has 4805 branches and 12260 ATMs across various cities in India. The company has a market capitalization of 580122 Cr.
HDFC Bank’s Performance
Reliance Industries Limited
How doesn’t know Mr. Dhirubhai Ambani? In the year 1957, he came back to India from Yemen. He was having only Rs. 500 with him which he wanted to invest in his business.
He ventured into trading business and traded primarily spices and fabrics. This helped him establish a small spinning mill in Naroda Gujarat in the name of Reliance Commercial Corporation.
Dhirubhai Ambani was awarded for starting equity cult in India. He has convinced many small businessmen to invest in his company. In the year 1977 Reliance Industry’s IPO was launched. Where in more than 58000 investors from various parts of India has invested.
Reliance Industry has recently forayed into telecom business under the brand name of JIO. The launched of JIO has changed the matrix of the entire telecom industry.
The company is doing very good after the launched of JIO mobile services. Its revenue has increased many folds in the last 2 years.
Reliance Industry’s Performance
Larsen & Toubro
L & T is one of the best buys anytime. It is the reflection of the Indian economy.