Blue-chip stocks are stocks issued by financially and fundamentally strong companies having huge market capitalization and reputation. The best blue-chip shares to buy now usually are stocks of the bellwethers and trailblazers currently occupying the highest ranks of any industry. Blue Chip companies are easily recognizable due to their large size and distribution network. These companies sell high-quality products and services across the country. As a result, these companies are more resistant to economic falls and continue to grow or run profitably. Even the market odds are against them. So, these companies are less sensitive than the small-cap or mid-cap companies.
The term ‘Blue Chip’ came from the round of poker where the blue-colored chips are relatively more valuable. Similar to the game, these stocks are more valuable in the market and are called Blue Chip stocks.
In this article, we will discuss some of the best Best Blue Chip Stocks available in India, 2021, and also their nature, advantages, and why investors should invest in Blue Chip Stocks with some other related factors. Lastly, suggest some of the best Best Blue Chip Stocks available in India, 2021.
Why investing in Blue Chip stocks are good
All investors want to put their money into a company that has been profitable for many decades. Blue-chip stocks aim to provide returns over the long term, even they are not always among the most popular stocks. So, these stocks are excellent investments if investors can stick with them in both good and bad times. Their solid financial position, consistent growth rate, excellent management team, brand recognition, and reputation keep them raised through difficult business cycles and industry trends.
Most blue-chip companies in India have a market capitalization of more than Rs. 20,000 crores. Debt-free stocks are the bluest among other blue chips and can be distinguished by their lower and stable Debt to Equity ratio. In addition, blue-chip businesses have a high Return On Equity (ROE), a high interest coverage ratio, and a low Price to Revenue ratio.
Characteristics of Blue Chip stocks
Blue Chip companies are large and pretty well established in nature, so they do show a history of consistent performance with providing consistent returns in the form of considerable dividend payouts at regular time intervals. Even the best blue chips have a history of attractive returns and reasonable growth in the value of the share in times of economic doom.
These companies are financially resilient with near to zero debts and are capable of surviving economic fluctuations. Most of the best blue-chip stocks are market leaders in their respective industries. Furthermore, it is often seen that a Blue Chip business is less affected by unfavorable financial conditions during recessionary periods.
Possess low risk
Investing in Blue Chip stocks is ideal for investors having a low-risk profile to meet their goals over the long term of at least 5-7 years to avoid market risk and volatility. Some portion of an investor’s portfolio should always be exposed to blue-chip stocks for stable and less risky returns.
The blue-chip stocks are of well-diversified companies having multiple sources of revenue. Hence, the losses suffered by one sector are mitigated by the profits earned in another sector. Hence, it allows investors to diversify the investment risks in blue-chip stocks as the companies have spread their roots over different sectors and industries. This not only serves as a protective measure against losses suffered by one sector, as well as provides resilience at times of operational setbacks.
Most Blue Chip companies in India have a market capitalization greater than Rs. 50,000 Crore and have a track record of consistently increasing trajectory. They are generally debt-free companies but, a low and stable Debt to Equity ratio is also considered as a significant characteristic. Blue Chip companies should have a high return ratio, high-interest coverage ratio, ability to consistently generate cash flows, etc.
Best Blue Chip Stocks in India
TATA Consultancy Services Ltd
TCS Ltd is the world’s largest IT service provider and also the largest IT company in India by market capitalization. The company provides a wide array of services such as IT Services, consultancy, business solutions, digital transformation, IT products, and platforms.
The company is developing modern technologies such as cloud-based computing, machine learning, AI, and Blockchain-based technology. The majority revenue segment is BFSI which forms about 31% of the total revenue followed by Retail and CPG, Communications, Media and Tech, Manufacturing, Life Sciences, and Healthcare, and Energy and Utilities among Public and Others.
TCS generates major revenue from North America, contributing about 51.3%, UK and Europe ex-UK are around 31.9% while India is the least at 5.1%. The company has a proven track record and has been delivering industry-leading results like average Return Over Equity of 35% in the last 5 years, an operating profit margin of 28.3%, and a high cash flow generating business with FCF at about Rs. 35,764 Crores. As well as revenue growing at a CAGR of 9% and also the net profit experience 7% CAGR for the same period.
Though the company has delivered strong financial performance, the stock carries valuation v’s. Peer a PE ratio at 34.9 times v’s industry average PE ratio of 32.47 times. While the PE ratio is higher, the premium is justified as TCS has also delivered industry-leading growth and returns.
TCS has a market cap of Rs. 1,317,066 Crores as of August 2021.
Infosys Limited is a multinational company based in India that specializes in business consulting, information technology, and outsourcing. Bengaluru, Karnataka in India are the company’s headquarters. By 2020 sales estimates, Infosys is the second-largest Indian IT company after Tata Consultancy Services. Also, it is the 602nd largest public company in the world according to Forbes Global 2000. Stock with strong financial results and a fair to expensive valuation, ROA has been declining for the past two years due to inefficient asset usage to generate profits.
Infosys has a current market cap of over Rs. 6,00,000 Crores, Price to Book(P/B) ratio of 6.78, P/E ratio of 31.26, and a Dividend yield of 1.90%. As of August 2021, Infosys has a market cap of Rs. 738,291 Crores.
Reliance Industries Ltd
Reliance Industries Ltd runs its main businesses in oil exploration, petroleum refining, petroleum marketing, and distribution as well as petrochemical activities. The company wants to be carbon neutral by 2035. So it’s focused on diversifying through energy and other sectors while still investing in the oil industry. Increased shareholding by FIIs/FPIs or Institutions. Stock with good financial results and a fair to expensive valuation, but no market momentum as suggested by technical indicators. Price is below the Short, Medium, and Long Term Averages indicating a lack of momentum. Ineffective use of shareholder capital ROE has been decreasing for the past two years. Reliance Industries Ltd has a market cap of Rs. 1,469,161 Crores as of August 2021.
HDFC Ltd is the market leader in the housing finance industry in India. It has a strong distribution network comprising 585 outlets. It is known for its outstanding track record of operations, capitalization levels, strong resource growth capability, risk management procedures amidst some moderation in the previous year. The Company has a strong business franchise of subsidiaries in Banking, Asset Management, Life Insurance, General Insurance, Educational loans, and Real Estate funding.
As of December 2020, the company maintained adequate liquidity of over Rs. 42,540 Crores in the form of bank balances, liquid mutual funds, deposits with banks, and investments in Government securities. The loan portfolio stood at Rs. 4,90,948 Crores as of March 2020 and the average size of individual loans stood at Rs. 29.50 lakh during the year. This NBFC continues to maintain healthy capitalization levels supported by its strong capital raising capability with a Capital Adequacy Ratio (CAR) of 22.2% as of March 2021. HDFC has one of the most stable asset quality parameters in the housing finance industry with a Gross NPA ratio of 1.98%. As of August 2021, HDFC has a market cap of Rs. 489,485 Crores.
ITC has a diverse industry in Cigarettes, FMCG, Hotels, Packaging, Paperboards & Specialty Papers, Agribusiness, and many more. In 2010, the company celebrated its 100th anniversary, with annual revenue of Rs. 1074 Crores and a market capitalization of Rs. 3500 Crores in 2019-20. ITC is a Company with low debt and over the last five years. The company has paid out high dividends with increasing dividend yields. The company has been raising net cash flow for the past two years. ITC has a market cap of over Rs. 257,193 Crores and Price to Book(P/B) ratio of 3.97 as of August 2021.
Some other considerable Blue Chip Stocks in India
1. Hindustan Unilever Ltd.
2. Asian Paints Ltd.
3. Larsen & Toubro.
4. Maruti Suzuki.
5. Coal India.
7. Bharti Airtel.
8. Bajaj Finance.
Advantages of Blue Chip Stocks
They can yield consistent dividends
These are stocks possess a high market share and are also very profitable. Such companies often share their profits with shareholders in form of dividends. Hence blue-chip companies are often the best dividend payers of the market.
Their earning growth is more certain
The strong business fundamentals of blue-chip stocks make their future growth more predictable. High market share, high profitability, and low debt make them invincible. It is hard for competitors to beat them in their game.
Their stock prices are more stable
The price stability of blue-chip stocks is one of the biggest advantages in market falls. It doesn’t mean that price of blue-chip stocks does not fall when the index is falling but, the fall will be slower and recoverable faster.
Disavantages of Blue Chip Stocks
So, there is no doubt that blue-chip stocks are the safest investments for long-term investors. But, once a blue-chip doesn’t mean it will remain as a blue-chip forever. No company can continue to enjoy its prime position forever. These stocks also need to be dealt with care and investors cannot blindly invest in blue-chip stocks. Why? Let’s find out.
Buying blue-chip stocks at any price will not do. It must be bought at reasonable price levels.
It is true in most cases. As Blue chip companies are all matured and large companies, their future growth is not as fast. Hence, it is essential to estimate one’s investment objectives accurately. If the objective is faster capital appreciation in long term, growth stocks are better.
Best way to invest in Blue Chip Stocks
The best way is to invest in all blue-chip stocks that are good in quality in terms of performance and other considering factors. But, how to judge the best out of the best? Simply, investors can consider investing the Index funds of Nifty 50 and Nifty next 50 which will let the investment indirectly in best Blue Chip Stocks.
Although, investing in blue-chip stocks gives certainty in terms of company profile but, it doesn’t mean that investing in blue-chip stocks is always good. Many blue chips stocks in India have given negligible returns over a decade and some have even given negative returns in the past decade.
While investing in blue-chip stocks, investors should always evaluate the company profile, business model, and scope of business growth. If one invests in blue-chip stocks, even a novice would have a healthy cash flow. They are a must-have in every portfolio, not only for new investors but also for seasoned market participants.
In the short term, blue-chip investments are comparatively low risk and low return investments. So, blue-chip stocks should be the foundation of any investor’s portfolio, but should not be the only investment.