What are blue chip stocks?
Stocks issued by financially stable and fundamentally robust blue chip corporations with a massive market capitalization and great market reputation are the blue chip stocks to buy. Companies with a higher market capitalization are referred to as blue chip companies. These businesses have been operating in the market for a long time. Stocks of bellwethers and trailblazers, which are now occupying the highest ranks of any industry, are usually the greatest blue chip shares to buy right now.
A Blue-Chip corporation is immediately identifiable, financially stable, and has a broad distribution network due to its size. These businesses usually provide high-quality goods and services that are well-liked across the country. These characteristics make such businesses more resistant to economic downturns. Even in difficult market situations, they may be able to grow or function economically. And this is one of the reasons why, when compared to Mid Cap and Small Cap companies, these companies are less sensitive to broad market swings.
Blue Chip firms are market leaders in their respective industries and are listed in the mature lot on stock exchanges. Apart from their reputation, the fact that such companies pay out excellent dividends can be attributed to the stock’s increasing popularity. The name “blue chip” comes from a game of poker in which the blue colored chips are more valued. These equities, like the game, are more valuable in the market and are referred to as Blue Chip stocks.
Blue chip stocks have the following characteristics:
Constant Returns –
Blue Chip enterprises are huge and well-known, with a track record of steady performance. The finest blue-chip stocks to buy have a track record of consistently returning to shareholders in the form of significant dividend payouts at regular intervals. As a result, even in times of economic catastrophe, the greatest blue-chip stocks to buy have a beautiful history of good returns and fair growth in the value of the share. As a result, we studied the history of blue-chip firms and conducted a rigorous analysis of historical performance, as well as the economic situation, to compile a list of the best blue-chip shares to buy now.
These businesses are financially resilient, having little to no debt and the ability to weather economic storms. The majority of the finest blue-chip stocks to buy are market leaders in their fields. Furthermore, during recessionary periods, it is frequently seen that a Blue Chip corporation is less influenced by bad financial situations.
Blue Chip stocks are recommended for investors who want to achieve long-term goals of at least 5-7 years and have a conservative risk profile. However, investing in these companies is a great way for all investors to build wealth over time while avoiding a lot of risk and volatility. Blue chip stocks can always be a part of an investor’s portfolio for a variety of reasons.
Diversification of your portfolio
Blue-chip stocks to invest in are those of well-diversified corporations with diverse revenue streams. As a result, the losses incurred by one channel are offset by revenues generated by another. As a result, it helps investors to diversify the risks associated with investing in blue-chip stocks, as the corporations have spread their tentacles throughout a variety of industries. This not only acts as a buffer against losses in one area but also as a source of resilience in the event of operational setbacks.
Possibility of expansion
Blue-chip companies are those that have reached the pinnacle of their growth potential. This has an impact on blue-chip stocks, which grow slowly but steadily over time.
In India, gains from blue-chip stocks are taxed under Section 80 C of the Income Tax Act. The tax rate on short-term capital gains is 15%. Long-term capital gains of more than Rs. 1 lakh, on the other hand, are subject to a 10% tax rate.
Why Should You Invest in Blue Chip Stocks?
Now we’ll look at the top four reasons why you should invest in blue-chip companies:-
Dividends can be earned consistently.
If a company performs successfully year after year, it will have consistent earnings to allocate to employees, owners, investors, and other stakeholders. It simply indicates that investors have placed their faith in the company. This is a highly positive sign, as the company’s fundamentals are sound.
As a result, it is evident that if a stock has stable earnings, it is supported by a strong management team that is doing something right to keep the company’s growth on a steady track. You can generate a lot of money from your investment portfolio, which is the first and foremost goal of any investment.
Dividends are paid on time.
A strong trend demonstrating that the company pays dividends on schedule and in a consistent manner to stockholders is viewed as frosting on the cake by investors. This is because that their income rises in lockstep with their capital gains. Blue chip stocks pay out dividends on a regularly.
That is the main reason why blue chip firms or inventories are considered to be the best investments. If you obtain a 20% dividend on your investment, it means that your capital has increased by 20% while your earning potential in the form of dividends has increased by 20%. Dividends are money that you receive in addition to the value of your investment. As a result, dividends are seen as cherry cakes by investors.
The Aspect of a healthy financial situation
When a corporation is a blue-chip one, it has strong financials to back it up. It signifies that the company’s debt-to-equity ratio is optimal, that the financial ratios are good, that the company’s operating cycle is efficient, and so on. From the investor’s perspective, owning such blue chip companies simply implies less volatility, fewer negative risks, and the opportunity to better manage the risk portfolio. The key reasons why blue chip stocks are favored above inferior ones are as follows that Blue chip stocks are a little more expensive, but they provide you a lot of bang for your buck.
Branding and goodwill
Blue chip enterprises have a strong reputation and goodwill in the general public. These are businesses that have a competitive advantage over other businesses, whether they are new or incompetent. Blue chip corporations develop as market leaders due to cost efficiency, goodwill, quick accessibility to franchisees, and distribution control. No one will ask you if you buy a sprite or a Coco Cola can, and no one will question you if you buy a P&G Head and Shoulders Shampoo (Proctor and Gamble).
In India, here is a list of the best blue chip stocks to buy right now-
Reliance Industries Ltd.
Tata Consultancy Services Ltd.
Hindustan Unilever Ltd.
Housing Development Finance Corporation Ltd.
Asian Paints Ltd.
Avenue Supermarts Ltd.
Kotak Mahindra Bank Ltd.
Nestle India Ltd
Maruti Suzuki India Ltd