Meaning:

Blue chip stocks are shares of very large and well-recognized companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions.

It was Oliver Gingold of United States of America who coined the term ‘blue chip’ for the superlative stocks in the year 1920. This term came into vogue after Gingold, while standing near the stock ticker at a brokerage firm, noticed that several stocks traded at $200 or more per share. He called them ‘Blue Chip Stocks’ and wrote an article on them. That’s how the phrase was born.

Some of the key features of blue chip stocks are as listed below:

Superior returns:

Since blue chip are industry leaders, they have higher chances of growth and therefore can deliver higher returns.

Low Volatility:

Blue Chip stocks are of companies that are financially sound with competent management & strong corporate governance practices. This makes the companies stable and less affected by market volatilities.

Regular Income Through Dividends:

Blue Chip investment belong to companies that have huge cash surplus and can offer regular dividends to the investors.

High Brand value:

Blue chips companies have brands that cater to the daily needs of people. Hence these companies have a high brand value and strong competitive edge over emerging brands and companies.

Stocks have High liquidity:

These companies are popular on the stock market and hence their trading happens in huge volumes in the market. One can easily buy and sell the shares of such companies. Thus they have very high liquidity.

Apart from the characteristics discussed above, an investor must keep a few key financial characteristics of blue chip companies in mind before investing. Most Blue Chip companies in India have market capitalization greater than Rs. 50,000 Crs. These companies have a track record of consistently increasing their topline and operating margins on an upward trajectory.

According to the market capitalization, there are multiple blue chip companies whose stocks will generate good returns in the long run. Here is a list of top 10 blue chip stocks that are faring well in the stock market:

Indian Tobacco Company (ITC) Limited

Hindustan Unilever Limited (HUL)

Reliance Industries

Tata Consultancy Services (TCS)

Oil and Natural Gas Corporation (ONGC)

Housing Development Finance Corporation (HDFC)

Infosys

Eicher Motors

Sun Pharmaceuticals Industries Limited

State Bank of India (SBI)

As we’re aware, stock market investment is always risky but a successful investor manages risk aptly such that his investments bear handsome returns in long run while preserving the investment capital. Investing is blue chip stocks helps to reduce this risk.

Value investors do not buy blue chip stocks always. This is why value investors track the blue chip company stock price movements closely. They wait for prices to fall below its intrinsic value. Buying stocks of blue chip companies at undervalued price levels ensure very good returns.