Blue Chip Companies in India: Should you invest?

blue chip stocks India

What are Blue Chip Stocks?

A blue chip stock has a large market capitalization with an excellent reputation, a history of sound fundamentals, and payment of regular dividends to its shareholders. They are relatively less volatile than other mid-cap and small-cap stocks and are less affected during adverse market conditions. Blue chip companies have a large distribution network that makes them easily recognizable and sells quality products and services nationwide.  

Features of Blue Chip Stocks

Blue Chip Stocks provide Stable Returns

Blue chip stocks are the most reliable when it comes to stable returns and that makes them favourite among long-term and conservative investors. Blue chip stocks might not give as much a return as small-cap and mid-cap companies but provide stable returns and relatively less return than other stocks. 

Blue Chip Companies Offer Regular Dividend

Blue chip companies pay regular dividends to their shareholders on a quarterly or annual basis. Although they may not necessarily pay dividends every time, sometimes they may reduce the dividend payout and use it for the expansion or the growth of the company. They pay dividends from the profit they had made and reward the shareholders for investing and trusting in them. 

Blue Chip Shares High Market Capitalization

The market capitalization of a blue chip stock is more than 20,000 crores and their high valuation makes them expensive. Based on market capitalization, India's leading blue chip companies are the state bank of India, Bharti Airtel, Tata consultancy services, Reliance Industries, Coal India, HDFC, ITC, Infosys, ICICI Bank, ONGC, GAIL, and Sun pharma. 

Blue Chip Stocks are Perfect for Long Term Investment

Investing in blue chip companies makes more sense if you are investing for a longer time horizon as they undergo slow but steady growth over time. Investors most preferably add blue chip companies to their portfolios for their retirement savings to earn a substantial return. 

Blue Chip Shares Carry Comparatively Fewer Risks

Blue chip stocks are relatively less risky than mid-cap and small-cap stocks because they are financially sound, excellent in management, and lower debt. Blue chip companies have a minor impact during market volatility or market correction and they are mostly debt-free or have a lower debt as they always have adequate capital to clear their debt. 

Blue Chip Companies have Experienced Management

Management acts as a backbone for any business to grow and plays a vital role in the progress and functioning of a company. The CFO, CEO, and board of directors of blue chip companies have considerable experience and are known for their expertise in their industry. 

Advantages of Investing in Blue Chip Stocks India

  • Regular dividend: Regardless of market condition, blue chip companies pay regular dividends to their shareholders and it is considered one of the great ways to earn passive income. 
  • Least effort: The blue chip stocks are not as fluctuating as other securities and require the least effort from you and you do not have to track the stock price regularly.  
  • Portfolio diversification: You must add blue chip stocks that have strong fundamentals and future growth to achieve a diversified portfolio. Your asset allocation in the portfolio relies on your risk appetite, if you are a conservative investor who does want to take much risk can allocate most of their capital into blue chip stocks. 

Important Things to Keep in Mind Before Investing in Blue Chip Stocks India 2022

  • Expensive: Blue chip stocks are relatively more expensive than other securities as they are well established in their industry and it's very rare to find blue chip stocks with low P/E ratios. So, the share price of blue chip stocks can be expensive for small investors. 
  • Low returns: Blue chip companies have been in business for quite a long time and they have reached their maximum growth potential. So, you won't find exponential growth in the stock price in the short term however they provide outstanding returns over years or decades. 
  • Growth: Blue chip companies may not grow as fast as other small-cap and mid-cap companies. Sometimes they give a less return than the benchmark index. For example, ITC has been known for its slow and steady growth in the stock market, the CAGR(compounded annual growth rate) of ITC is -3%, which is very low. 

Top Blue Chip Stocks Based on Their Past Return

Company name Market capCMP (23 June 2022)
Reliance industries ltd16.61LCr2,464
Tata consultancy services Ltd.12.04LCr3,308
Hindustan Unilever Ltd5.29LCr2,252
Infosys Ltd. 6.09Lcr1,452
HDFC Bank Ltd. 7.52LCr1,335
Bharti Airtel Ltd3.73LCr660
ITC Ltd. 3.26LCr265
Asian paints Ltd. 2.63LCr2,758
Nestle India Ltd. 1.64LCr16,976
HCL Technologies Ltd. 2.64LCr971

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

How Can You Invest in Top Blue Chip Companies in India in 2022? 

First thing first, to get started in investing, you have to open a Demat account from a discount broker or full-service broker and when your account is activated, you can either invest directly in top blue chip stocks India or through a mutual fund. For investing directly in blue chip stocks, you need to do proper research and analysis whereas if you want to invest in blue chip stocks through a mutual fund, you can look for a fund that invests in blue chip companies. 

Who Should Invest in Blue Chip Stocks?

Investors who have recently started investing can opt to invest in blue chip stocks or those who don't want to take risky bets but still want to earn good returns can invest in blue chip stocks for 7-10 years to get the best out of it. Investors also turn to blue chip stocks when they desire to limit their risk. 

How to Pick Best Blue Chip Stocks List?

Although best blue chip stocks India are considered good fundamental stocks, investors need to do their analysis and research before investing their hard-earned money. As an investor, you cannot buy a blue chip stock for its fancy brand name and impressive dividends. Investing without doing proper research and analysis can lead to huge losses. 

Fundamental indicators that help you filter out the best blue chip stocks. 

Debt to equity ratio: companies with lower debt to equity ratios are more reliable than those with high debt to equity ratios. the lower the debt-to-equity ratio is, the better it is for both the company and its investor 

Strong financials: Investors should go through the financials of at least the past 5 to 10 years. For example, the sales revenue, EBITDA(earnings before interest, taxes, depreciation, and amortisation), return on equity, operating cash flow, and earnings per share should increase consistently. 

Fundamental and technical analysis: Investors can look for blue-chip stocks which are fundamentally and technically sound to execute risk management planning at the time of market failure. 

Market capitalization: Market capitalization is the total valuation of a company's outstanding shares and is calculated by multiplying the current market price by the total number of shares of a company. Market capitalization acts as an important indicator while evaluating quality blue chip stocks and companies with a high market capitalization are considered good. 

Intrinsic value: Intrinsic value tells you the actual value of a company and smart investors not only consider the market capitalization, but also the intrinsic value while picking blue chip stocks because the market capitalization is determined by demand and supply and it does not show the value of a company. If the intrinsic value is more than the company's stock price, it is considered overvalued and if the intrinsic value is less than the company's stock price, it is undervalued. 

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares.