There is no dearth of investment options, but when it comes to putting money so many things come into mind. Few risks and high returns are the criteria that supersede any other things.
If you are a keen learner or avid reader of business in general and share market in particular, you must have heard about “Blue-Chip Stocks”.
Do not know much about that !! Be with us.
What Is Share Market?
Share market is a place where any registered company can launch its IPOs based on various terms and conditions prescribed by the Security and Exchange Board of India (SEBI).
Security and Exchange Board of India (SEBI) is the regulator of the capital market and works as a policymaker for the market.
What Are Blue-Chip Stocks?
Once a well established company with reliable data issues or re-sales it’s stock in the market, they are called blue-chip stocks. Blue-chip companies hold an excellent reputation as their financial conditions are sounds and stable. The probability of default or bad returns is low as there have good financial backings.
Market capitalization, market share, number of employees, good balance sheet, strong management, great future products and high positive reputations determine the blue-chip stocks.
Blue-Chip Stocks V/S Other Investment Options
In the last 20 to 30 years, the investment portfolio of the majority of urban Indians has changed. People are aggressively putting out their money from traditional investment sources like banks, post offices and putting them into unconventional investment options. Mutual funds, share markets, bullion market, commodity market, real estate, crypto and much more has emerged at a fast pace.
Out of these, share markets have gained more trust and credibility even in the rural parts of India. Sensex, Nifty, and other shares market indexes have become popular names.
Features Of Blue-Chip Stocks
Better returns than banks, post offices and other traditional investment options
In a large share market, you can consider blue-chip stocks as a safer investment as compared to small or medium-sized companies. You can make your financial planning as blue-chip stocks give steady earning in most cases.
Will you put your money with one person with no or little financial strength and the other with great creditworthiness ?
Off-course, the second option is the ideal one. As blue-chip companies have deep packets they can easily handle some sort of volatility.
Despite being in losses for one or two years, they are capable of bouncing back to the profit zone. So blue-chip stocks are highly creditworthy and come with a low probability of default.
Reduced Risk with blue-chip stocks investment
Big companies with stable financial performance come with comparatively less risk. They have a good balance sheet and diverse portfolio helping in risk reduction.
Companies like Reliance industries are into multiple sectors. So even if one sector is not performing well, the companies get good returns from other ones.
The old saying “Do not put all your eggs into one basket” is true here. Blue-chip companies invest money into multiple sectors, risk automatically gets reduced.
Blue-chip stocks are good for long term investment
In recent pasts, blue-chip investment has become a good alternative to long-term corporate bonds, fixed deposits, Public provident funds, National saving services, Kishan Vikash Patra and other investment options with lone time -frame. In the long run, blue-chip stocks give better returns than the options mentioned above.
Save taxes by investing in Blue-chip stocks
The government of India provides exemption on gain generated through blue-chip stocks under Section 80 C of the Income Tax Act. In general, short-term capital gain taxes are taxed at the rate of 15%, whereas long-term is exempted to some extent. In the long term when you exceed Rs 1 lakh then you are subject to taxation at the rate of 10%.
Sell and purchase blue-chip stocks with High Liquidity
There is always a high demand for blue-chip stocks. So when you feel, you need some hard cash, you can sell those shares as per the terms and conditions of the market. Even many private companies provide loan facilities on the submission of shares certificates.
Blue-chip stocks are trusted by all so it serves the good purpose of gifting. You may gift to your next generations or anyone else of your choices. It’s a privilege to hold the shares of those big companies.
Better acceptance among others
The sense of belongings is always overwhelming. You use motorbikes from Hero MotoCorp and holds some shares of these companies. You can imagine the feeling of attachment here.
Blue-Chip Stocks For 2021 In India
- Reliance industries- Crude oil
- Infosys – Information technology(IT)
- Hindustan Unilever- Fast-Moving Consumer Goods (FMCG)
- HCL- Information technology
- Nestle India – Fast-Moving Consumer Goods (FMCG)
- Tata Consultancy System- Information Technology(IT)
- HDFC- Banking
- ITC- Fast-Moving Consumer Goods (FMCG)
- Bharti Airtel- Telecom
- Bajaj Auto- Automobile
- Larson & Turbo- Infrastructure
- Maruti Suzuki- Automobile
- Pidilite Industries- Chemicals
Look For These Signs To Choose Blue-Chip Stocks For Investment
Blue-Chip stocks give regular and stable dividends without or less dependence on the market conditions. It attracts all types of investors to come and invest. Identifying blue-chip stocks is easy still difficult. Look for the following information to choose the best blue-chip stock for investment.
- The first and foremost thing is to think about market capitalization. You may look for capitalization value that is the total value of outstanding shares of any company. It gives a good signal about the size of the company.
- Look for big companies in any segment like banking, infrastructure, insurance, manufacturing, or any others. Those big companies are also called large caps and most of the blue-chip companies belong to that category only.
- Piotroski score or F-score is a good indicator for the performance of any company. A beginner might feel difficulty in calculating the score but once you get a hold of that the process becomes easier. F-score depends on positive net income, the quantity of earning, liquidity increase. Leverage decrease, operating cash flow, gross margin, asset turnover ratio and more.
In the share market, an F-score of 6 or more is regarded as good to invest in stock. However, the score does not always present factual data. In case the whole sector is down, even blue-chip stock’s score gets low to below 6. The best way is to compare between scores and choose the one doing well in every aspect.
- Profits are another indicator for a bright future. Who will put the hard-earned money in a company doing bad continuously from last some years? People may invest in loss-making companies but that is a calculative risk. Look for company income and compare other parameters for selecting blue-chip stocks.
- For those who do not understand F-score better, the Return On Equity (ROE) and Return On Assets (ROA) ratio is good. Seek ROE and ROA information of your selected company to be doubly sure about the performance.
High ROE represents a company with more profitability as compared to the shareholder equity whereas high ROA means a company making efficient use of its resources for better growth.
- Different sectors have different ratios so you cannot compare a banking stock with infrastructure for choosing the blue-chip stocks. First look for the promising sector and compare the ROE and ROA ratio of all those companies in the sector.
Where To Invest Besides Blue-Chips Stocks?
India as a country offers most of the investment options available in the world. You may not find yourself suitable for those alternatives inventions options but there is no lack of alternatives.
No doubt blue-chip shares are suitable for risk-averse and conservative investors but here are some other options:
Real estate- Good return, useful investment
Had you not notice the all-around development of your city around the clock? Visit any part of our country, and you will get to see some or other types of infrastructure or real estate development 365 days. People put the money into that for living, businesses, renting and also for selling in the future with good returns.
It is one of the most profitable investment options with very few risks. You can also give the property on rent unless you do not decide to sell it for earning profit.
Exchange-Traded Funds(ETFs) – Variety of investment options
ETFs are good options for conservative types of investors. Under this option of security more than one investment options are mixed.
Stocks, bonds, commodities and other investment options get mixed in such a way that investors get a good return but with less risk. This collection of securities is traded on an exchange and people consider it a good investment option.
In the market, below mentioned ETFs are widely available :
Fixed deposits- All time favorite of investors
Fixed deposits are an all-time favorite of Indians. You must have known your previous generation visiting banks and post offices for investment into fixed deposits, PPF, NSC, KVP, Sukanya Samridhi Account, Senior Citizens Account and more.
All these options come with varying maturity periods. The investor put the money in one go or through installment. After maturity money gets credited into saving back for further taking out through ATM, physical withdrawal or online transfer.
Here, returns are not as high as blue-chip stocks, but the investment is secure to some extent. Reserve Bank of India, central government, various ministries, departments and autonomous bodies keep a watch on investment that makes it highly safe. Under the income tax act, these options are exempted up to 1.50 Lakh in a financial year.
Government security bonds- Peace of mind with not so high return
The government of India too requires money for running so many welfares, infrastructure, and other plans in the country. For that purpose, it issues low-risk, low returns bonds monitored by RBI.
Here, investors get fixed interests but the risk is low and liquidity is high.
Government bonds are low-risk investment options that are issued by the government of India and monitored by the RBI. Such bonds extend fixed interest to their investors and allow them an opportunity to diversify their investment portfolio.
Additionally, government bonds extend tax benefits to investors and offer liquidity.
The Disadvantage Of Blue-Chip Stocks
Blue-chip companies are mainly well established ones and they have great liking among the investors. An investor indeed gets safety, predictable returns, good dividends and other benefits but that does not come without any disadvantages.
The very famous investment rules apply here i.e. less risk, few gain. As these stocks are comparatively safer so the return is low. The low returns are there because the growth prospects of blue-chip companies are already at a saturated level. There can not be so many highs and lows in their growth.
Blue-chip companies command high valuations so most people invest for long-term returns. Secondly, it offers better returns than traditional investment options that create an advantage for small or medium investors. The share prices are always high so not everyone can afford to invest in blue-chip stocks.
Little impact of volatility
Little volatility has its own pros and cons. Blue-chip stocks are not highly volatile so it means even if there is over 25 percent rise on the share markets, you will still see an 8 to15 percent rise in blue-chip stocks.
Most of the volatility is caused by small or medium corporations with low saturation levels of growth. Low volatility makes blue-chip stocks unattractive for quick and short-term profits.
In the share market, there could not be an assured return; it can only be good returns. The market remains volatile and so many major and minor factors impact that.
Satyam computers that were once blue-chip companies came down heavily and within some years, the whole changed.
Is Blue-Chip Stock Investment Completely Safe?
Literally, no investment in the share market is safe. It’s all about the risk level and returns prospects. As compared to small-cap or mid-cap stocks, this is safer. Stock prices depend on a variety of major and minor factors.
Your blue-chip stocks of Indian oil might get down due to the increased tension between the USA and IRAN. USA and Iran both are good business partners and we largely depend for our petroleum needs on them.
How Can I Buy Blue-Chip Stocks In India?
There is no separate way to invest in blue-chip stocks. These stocks are just like normal stocks but they offer great stability and low risk. For investment into the share market in general and blue-chip stocks in particular, we need to follow these steps:
- Every investor needs to open a Demat account with any of the service providers of their choice. Demat account is just like any normal account where details of all the shares sales and purchases get recorded. You can gauge the popularity of Demat accounts by the fact that over 4 million Demat accounts are created every year.
- For opening a Demat account, you need to choose a depository participant. In India, stockbrokers, banks and various online investment platforms work as depository participants.
- Contact any Depository Participant (DP) like Zerodha, Sharekhan or anyone of your choice. Obtain an account opening form and submit it filled with all the asked information.
- Provide KYC documents like identity proof, address proof, pan card etc with the form. Your application goes through the verification process before a Demat account number is allotted to you.
- The verification process varies between DP providers but most of them prefer online or faceless verification through Aadhar authentication, Video calling and more.
- Once they complete the verification process, you get a Beneficial Owner Identification Number (BO ID). That BO ID is used to access the Demat account. For Demat account opening a copy of pan card along with any address proof such as voter id, electricity bill, Ration Card, Aadhar Card, Driving license, Gas Bill, Insurance document, lease agreement, apartment maintenance bill, passbook and more.
- Your DP also links your Demat account with your bank account so that you can make and receive payment of share transactions. There are no fixed fees on opening a Demat account. It varies between various DP.
Purchasing Blue-Chip Stocks On BSE
Once you have a Demat account, you can buy and sell shares of any choice on BSE as well as NSE.
- In today’s world of technology, investment has become easy. Most DP provides access to mobile applications where you can purchase and sell blue-chip stocks on the go.
- Alternatively, you can use their websites or trading console for investment.
- Log in to your account and look for shares of your choice.
- Investment will be done based on your understanding and budget. The amount will be deducted from your linked bank account and you will get the shares of that particular blue-chip stock.
- Keep exploring various features of the share markets in general and the trading applications or websites in particular. Once you get some hold on various features, you can make good money by trading.
Purchasing Blue-Chip Stocks On NSE
Investment in NSE does not require any different steps to follow. All the DP provides access to invest in BSE, NSE and other major share markets. You only need to select NSC under the share market and all the other steps are the same.
Is it worth buying blue-chip stocks?
Of course, it is worth buying. Most investment experts stress that you should have a balanced investment portfolio. Make some portions of investment in blue-chip stocks and remaining into other options like mid-cap, small-cap, mutual funds, SIPs and more.
What is the difference between BSE and NSE?
There is not much difference as both are the premier stock exchanges in India. Both are located in Mumbai and anyone can choose them for investment.
Which blue-chip stocks to buy today?
You should buy stocks that are at low prices. Compare the last 2 to 3 years’ prices and invest. Additionally, invest in the sector having good business prospects like information technology, infrastructure, fintech and others.
How many blue-chip stocks are there in India?
The list keeps changing but as of month, there are 119 blue-chip companies in the Indian share market.
How many blue-chip stocks I can own?
There is no limit on purchasing blue-chip stocks in general. But you can not invest in a certain blue-chip company beyond some limit.
What is a long-term investment in the share market?
Long-term investments are those with a span of 3 or more years in the share market. There is no upper limit of long-term investments as you can hold the shares as long as you wish to. Sometimes issuing companies recall the shares and in that case, you are bound to hand them over based on the terms and conditions.
The share market is vast like an ocean, Even if you get familiar with the Indian share market, there is so much left to explore around the world. Blue-chip stocks are the primary driver for share markets and attract high volume investment.
We recommend you to get a good sense of knowledge about the market before investing your hard-earned money. Even blue-chip stocks are not prone to market risk.