If you have someone in your circle of friends who invests in the stock market, the common advice you’d get is “Buy a Blue Chip Stock”.
But ask “What is a Blue Chip share?” and most wouldn’t be able to explain in simple words.
A ‘BlueChip’ stock is a well-established company that has been in business for several years. They are generally the market leader in their sector.
The biggest example of a blue chip company is Reliance Industries. It’s the biggest company in India right now in terms of market capitalisation. You could be reading this article on Jio network, more than 35 crore Indians use Jio! The company’s shift from its core petrochemical business to consumer-facing businesses like Jio and Reliance Retail has been staggering.
Other examples of BlueChip Stocks are TCS, HDFC Bank, HUL, ICICI Bank, Kotak Mahindra Bank, Infosys, ITC, Bajaj Finance, Maruti, Asian Paints etc.
Most of these companies have been in business for 10 years or more. They have a strong, reputed management. They are industry leading companies that are capable of handling economic downturns and recessions far better than smaller companies.
It’s because of this reason that ‘Blue Chip Stocks’ are considered to be safer investments as compared to mid-cap and small-cap companies.
Can Blue Chip Stocks fall? Are Blue Chip companies 100% safe investments?
Questions like these, get asked quite frequently. The answer is, yes, Blue Chip Stocks can fall. There is nothing that’s 100% safe in the stock market.
When the 2008 economic-crisis happened, almost every stock in the world (not just in India) fell and blue chips crashed too.
These ups and downs will always be a part of the stock market. But blue chip companies are usually the first to recover. They are generally considered to be safe when the investment period is more than 5 years.
Tip: Whether a company is of ‘blue chip’ quality or not, before you make any investment, it’s important to do your research and understand the future potential of a company’s business.
Reliance is doing well right now because the future potential of its Jio and Retail business is huge. But the stock gave zero returns between 2008 to 2017. It was moving between ₹ 400 – 600 for nearly 10 years. But in the last 2 years, the stock has nearly tripled in value.