Most people in the stock markets have heard the term “blue chip stocks”, often used in the context of buying/recommending stocks of certain companies. But what exactly does the term refer to?
The first thing to note is that there is no objective definition of such stocks – the term has come as a reference to quality companies that are high in value, but there is no way to objectively measure it. Which means that what is a blue chip for you, might not be a blue chip for another.
So what does the term mean? Generally speaking, blue-chip stocks refer to high-quality stocks of well-established companies that have stable earnings & low debt. These are considered to be premium stocks due to these characteristics.
Interestingly, the term has its origins in the game of poker! Most basic poker sets include chips of 3 colors – white, red, and blue – and blues traditionally are the highest in value.
Anecdotally, Oliver Gingold, an analyst/reporter working what became Dow Jones, is said to have coined this phrase when referring to certain expensive stocks in the early 20th century.
While the term was initially used to describe expensive stocks, over time it has become synonymous with high-quality stocks.
Across the globe, such stocks are considered to have key characteristics that have become a defining trait:
Several parameters – like revenue growth, debt-to-equity ratio, RoE, etc. – can be considered to identify blue chip companies. Some of the generally accepted blue chip stocks in India are:
|S.no||Company||Industry||Market Cap (INR Crores) |
|1||Reliance Industries ||Oil & Gas||811,718.81|
|2||Tata Consultancy Services ||Computer Software|| |
|3||HDFC Bank ||Private Banks||654,207.93 |
|4||Housing Development Finance Corporation ||Housing Financing||389,539.64 |
|5||Hindustan Unilever ||Cosmetics & Toiletries||370,873.71 |
|6||ITC ||Tobacco Prod.||337,419.87 |
|7||State Bank of India||Public Banks||324,498.88 |
|8||Infosys ||Computer Software||316,988.98 |
|9||Kotak Mahindra Bank ||Private Banks||283,296.06 |
|10||ICICI Bank||Private Banks||275,570.85|
You can invest in such stocks via multiple ways:
The main thing to remember is that there is no objective definition of blue-chip stocks. This means that what is blue-chip for some might not be blue-chip to others or yourself. Unlike large/mid/small-caps that are objectively defined based on their relative size, there is no such measure of blue chips.
Also, while such stocks usually tend to be low-risk and quality companies that are likely to give steady returns in the long term – ultimately these are equity investments & come with inherent investment risks.
As an investor, you should evaluate if these investments suit your risk profile & help you meet your financial goals before making any investments.
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