Generally, blue chips are regarded as the best or ones with the highest quality and return to shareholders. However, that does not always mean best performance for the past one year. Blue chips are sturdy companies unaffected badly by macro shocks and are dependable companies, with a proven track record over the long term. They’re big companies as opposed to startups or midcap companies that haven’t yet found their stride.
Blue chips also have a reputation for maintaining revenue, profitability and stock performance regardless of market behaviour, economic changes or international developments. That’s not to say that large market movements won’t move blue chips as well, but you can think of a blue chip stock as an ocean liner while many other stocks are much tinier.
Imagine any large industry and one or two blue chip stocks are likely to come to mind. When we think of the IT industry, we think of TCS and Infosys as blue chip stocks, and all companies that help to define the industry as a whole. Hindustan Unilever and Asian Paints are blue chips on the consumption side while HDFC Bank is a blue chip on the financial side.
The term “blue chip” has its origins in the game of poker. In American style, a basic poker set has red, white, and blue chips, which have the highest value. While there is no such thing as a safe bet, but blue chip stocks are often regarded as safer than other investments.
DID YOU KNOW?
Blue chip stocks are the best source of investments for individuals who want secure returns and are not big fans of volatile markets.