In a game of poker, players use chips of various colours like white, black, red, blue, etc. The white-coloured chips are said to be least valued, whereas blue-coloured chips are considered most valuable. From there, the term ‘blue-chip’ started being used to refer to high-priced or precisely high-quality stocks.
This article covers all about blue-chip investments, including the meaning, features and advantages of blue-chip stocks and how to invest and who should invest in them.
What Are Blue-Chip Stocks?
Blue-chip stocks are the stocks of well-reputed and well-established companies with longer business histories. Usually, blue-chip companies in India are financially sound and are among the top companies in their respective industries.
Some of the top blue-chip stocks in India based on their past performance include but are not limited to:
- Reliance Industries
- Tata Consultancy Services
- Hindustan Unilever Limited
- HDFC Bank
- Asian Paints
Features Of Blue-Chip Stocks
Here are some features that may help you find blue-chip companies in India.
Larger market capitalisation
Market capitalisation means the market value of a company’s shares, calculated by multiplying its outstanding shares and stock price. The blue-chip companies in India usually have a larger market capitalisation, generally above ₹20,000 crores. Because of their large market capitalisation, many blue-chip companies are a part of benchmark market indexes.
Blue-chip companies usually have reached their maximum growth potential so that they may grow slowly and steadily. As a result, they may be unable to offer significant capital gains. Though, they may be better positioned to pay out dividends.
Blue-chip companies have usually been in business for a long time and have proved their potential to survive a financial crunch in a market. Plus, you may be able to access their stock price and market share data and compare their performance over the long run. Some big companies might also release case studies that help you better understand the industries they belong to.
Sound financial prospects
One common characteristic of blue-chip companies is that they usually have sound financials and fundamentals. They may mark growing revenues, hefty profits, lower debt-to-equity ratios, etc.
Advantages Of Investing In Blue-Chip Stocks
Here are some of the advantages of blue-chip stocks.
When newbie investors start investing, their biggest fear may be losing their invested principal. They may prefer blue-chip stocks because blue-chip stocks are characterised by stable growth and solid financial prospects. They have fewer chances of going out of business and may show lower volatility even in unfavourable events. Therefore, they are said to be relatively less risky investments.
Many blue-chip stocks regularly pay dividends to their shareholders. Some of them are dividend aristocrats, i.e. consistently paid increasing dividends for over 25 years. For investors depending on or wanting regular income from stock investments, such blue-chip stocks may be suitable.
Some blue-chip dividend stocks include Hero MotoCorp, Britannia Industries, Shree Cement, etc. Few blue-chip stocks also offer high dividend yield, i.e. good dividends as a percentage of their market price.
Diversification of investments
You may also consider blue-chip stocks to diversify your investments according to your risk and return preference. Your overall investments may be less affected during market falls or recessions because of less volatile blue-chip stocks in your portfolio.
Because of their brand reputation and creditworthiness, blue-chip stocks usually have high demands, which makes it easy for investors to buy and sell them quickly.
How To Invest In Blue-Chip Stocks?
Direct investments in individual stocks
You must have a Demat account to invest in stocks and mutual funds. If you already have it, you may identify blue-chip stocks from the features mentioned above and buy them after thorough research.
Some mutual funds invest most of the corpus in stocks and other securities of blue-chip companies in India. Though, there is no official category for blue-chip funds. Instead, large-cap funds are used as a synonym for them.
You may also consider large-cap index funds or exchange-traded funds to invest in blue-chip stocks.
You may also consider investing in the following WealthBaskets which are dedicated to large-cap blue-chip stocks and are created and monitored by SEBI-registered professionals. WealthBaskets like Alpha Bluechip, PEARL Focus, Monopolies and Tamohara Q.
Who Should Invest In Blue-Chip Stocks?
- Beginners may prefer to invest in blue-chip stocks as they might carry lower risks. If they stay invested long, they may earn a higher average rate of returns on multi-bagger blue-chip stocks.
- Conservative investors, who are not ready to take up much risk, may prefer to invest most of their investable income in these stocks.
- Investors willing to earn a regular income may consider investing in blue-chip stocks offering high dividend yields.
Blue-chip stocks catch the attention of newbies and even seasoned investors. After all, they are well-known for offering good returns at lower risk in the long run. Though, they have limitations like a high price, less probability of short-term exponential returns, etc.
Therefore, it is always advisable to make investment decisions after considering their pros and cons and your investment goals.
WealthDesk helps you make your investment journey rewarding and hassle-free by enabling you to invest in WealthBaskets. WealthBaskets are combinations of equities and ETFs that reflect an investment idea, theme, or strategy and are built and closely monitored by SEBI-registered professionals.
The stocks of well-recognised companies which have already proved their potential and have long operating histories are considered blue-chip stocks.
There is no definite answer for the exact number of blue-chip stocks in India as there does not exist an official blue-chip stocks list.
No stocks assure the safety of the investment. However, blue-chip stocks are considered relatively less risky as they are the stocks of well-established companies and have fewer chances of going out of business in a recession.
Not all blue-chip stocks necessarily pay dividends, though many of them do.