What are Blue-Chip Stocks?

Blue-chip stocks are shares of large, well-recognized companies with sound financial performance and established history. Some of the characteristics of Blue-chip Stocks are:

• • Strong Balance sheet
  • Consistent Growth rate
  • Best Leadership/Management team
  • Sound Financial position
  • Consistent/Increasing Annual returns
  • Stable/Low Debt-Equity ratio
  • Regular/Increasing Dividend payout
  • High Liquidity

These qualities make these stocks worth investing in.

Blue-chip stocks have a dependable business model and a strong reputation amongst their customers and shareholders. Their proven track record, capability to endure unstable market conditions result in them gaining the confidence of their shareholders and investors. They are generally a part of the reputable market index. These stocks are valued highly in the market because of their reputation and hence are comparatively costlier. Some of India’s large blue-chip stocks include State Bank of India (SBI), Tata Consultancy Services (TCS), Coal India, Reliance Industries, HDFC Bank, ONGC, ITC, Infosys, ICICI Bank.

Blue-chip companies have large Market Capitalization. Most blue-chip companies in India have a market capitalization of more than Rs. 20,000 crores. These companies have a history of paying rising/consistent dividends to the shareholders. These stocks are preferred choices for new investors in the stock market as they have a proven track. The goodwill of these companies, history of resisting market downturns, and creditworthiness are convincing factors for an investor to pitch in for these stocks.

Blue-chip stocks have decades of sustained growth and an enduring prospectus. The share price shows a steady appreciation over time. Hence, one should invest in blue-chip companies with an investment horizon of 7 plus years. The stocks present a slow but moderate growth potential. One can invest in blue-chip companies directly or through Mutual Funds.

As these companies carry low risk because of their proven track record, investors have protection from market recession, inflation, etc. However, they are not invulnerable. Though it happens rarely, blue-chip companies too can go bankrupt. “General Motors” and “Lehman Brothers” are two such examples.

Even though blue-chip stocks are not bulletproof, their basic characteristics make them an appealing choice for investors due to high liquidity and the potential of giving good returns if held for the long term.