What is blue chip stock and how it can benefit an investor

Blue chip stock refers to the stock of a well established company which is large and financially sound. The main reason for investing in these stocks is that these companies have already survived challenges, adverse economic conditions and market cycle in their business. Therefore, investing in these companies is considered as safe.

Here are certain characteristics of a blue chip stock

We do not have any generally accepted benchmark to classify a stock as blue chip. However, in general, a company’s shares can be classified as blue chip if it has the following characteristics.

  • Company is in operation for a number of years
  • High sales turnover, EBITDA, and have stable earnings at the times of economic distress.
  • Selling high quality, widely accepted products and services for a long time.
  • Build a reputable and popular brand over the years.
  • Long record of paying stable dividends. However, dividend payments are not absolutely necessary to treat shares as blue chip company stock.
  • Large market capitalization
  • Has a solid balance sheet and income statement with high return on equity (ROE), higher returns on assets, interest coverage ratio and stable debt-to-equity ratio
  • Diversified operations and has a competitive advantage over others
  • Powerful and experienced management

While investing, you should always try to find out the fundamental value of the company and its future growth rate as there is no guarantee that these stocks will always perform well in compare to market. These companies are an ideal investment option for those who want regular periodic return with less risk and capital appreciation.

Here is a list of the top 15 Indian companies whose shares can be considered as blue chip stock;

  • Tata consultancy services
  • HDFC bank limited
  • Infosys limited
  • ITC
  • Hindustan unilever
  • AXIS Bank
  • Larsen & Toubro
  • Maruti Suzuki India
  • HCL Technologies
  • State bank of india
  • Coal india
  • Reliance industries
  • ICICI Bank
  • ONGC

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.