The phrase “blue chip” comes from the poker card game. The most basic poker chip sets consist of three colors: white, red, and blue. According to American custom, blue chips are the most valuable among other stocks.
What are Blue Chip Stocks?
High-priced market equities, known as blue-chip stocks, have recently been popular among investors. The corporations that issue blue-chip stocks are held in high regard in the stock market and often have a solid track record of financial stability and reputation.
In addition to their reputation, these businesses’ excellent dividend payout policies can be responsible for the stock’s rising appeal. However, people should arm themselves with crucial facts before investing in blue-chip companies.
Blue-chip stocks are those of large-cap businesses or those with a high market capitalization. Companies that issue these shares are well-established and have a solid reputation in the market due to past track records in wealth creation, corporate governance, profitability, execution, etc.
Factors to consider before Investing
Before investing in any kind of securities, one should thoroughly research the securities in question.
As a blue-chip investor, One should have a strong belief in the company and faith in the management because the time horizon for these investments is long-term (Buy and Hold). These shares have very little volatility as they have a long track record and have survived many business cycles.
One cannot anticipate that TCS or Reliance will cease operations tomorrow, but it’s doable, just like with Satyam Computer.
Top 5 Blue Chip Shares to look upon
Tata Consultancy Services Ltd
Tata Consultancy Services Ltd is the company’s flagship and a member of the Tata group. For over 50 years, it has partnered with many of the world’s leading enterprises on their transformation journeys through IT services, consulting, and business solutions. TCS provides a comprehensive portfolio of business, technology, and engineering services and solutions headed by consulting and as of today’s date, this is the share price of Tata Consultancy Services Ltd.
Financial
TCS’ top line climbed 19.1% year on year to Rs. 58,229cr (+5.3% quarter on quarter), driven by global demand for cloud services, vendor consolidation, and new deal wins across all verticals. On a constant currency basis, revenue from the Banking, Financial Services, and Insurance (BFSI) sector increased 11.1% yearly to Rs. 22,145cr. Life Sciences & Healthcare, Technology & Services, Communications & Media, and Manufacturing all grew 14.4%, 13.6%, 13.5%, and 12.5% year on year. Operating margin increased sequentially to 24.5% (+50bps), driven by currency movement (+70bps) and reduced subcontractor costs (+30bps), offset by third-party expenses.
| Key Ratios | 2018 | 2019 | 2020 | 2021 | 2022 |
| Net Sales Growth (%) | 4.46 | 18.98 | 7.16 | 4.61 | 16.80 |
| PAT Margin (%) | 21.02 | 21.55 | 20.67 | 19.83 | 20.05 |
| Current Ratio | 4.56 | 4.17 | 3.33 | 2.91 | 2.56 |
| ROCE | 39.84 | 47.8 | 50.02 | 52.56 | 60.22 |
| PE | 10.54 | 23.84 | 21.41 | 36.25 | 35.7 |
For detailed analysis, Click here.
ICICI Bank
ICICI Bank is a prominent private sector bank in India that provides various financial goods and services to individuals, small and medium-sized businesses, and corporations. The bank has many branches, ATMs, and other contact points.
With 5,614 branches and 13,254 ATMs across the country, ICICI Bank is India’s second-largest private sector bank. And has approximately 51% of its branches in semi-urban and rural regions and as of today’s date, this is the share price of ICICI Bank.
Financial
As of Q3FY23, ICICI Bank delivered impressive results on most fronts like Net Revenue, PPoP, and PAT; Slippages increased year on year and quarter on quarter, but absolute GNPA remained stable while the ratio decreased. The restructured book of the bank moderated sequentially. NIM grew YoY/QoQ significantly.
Advances increased by 20% year on year and 4% quarter on quarter. Deposits increased 10% year on year and 3% quarter on quarter, led by term deposits. CASA remained flat sequentially but grew at a slow 6% year on year, entirely driven by SA deposits. NIM increased by 69bps year on year and 34bps quarter on quarter.
This resulted in 35% YoY growth (the highest YoY growth in the previous 58 quarters) and 11% QoQ growth in NII. As a result, net revenue increased by 25% year on year and 8% quarter on quarter. Increased revenue and flattish operating expenses led to 31% YoY and 14% QoQ growth in PPoP. The core operating profit increased 31.6% year on year.
Higher PPoP offset the impact of higher credit costs, resulting in a 34% YoY and 10% QoQ increase in PAT to 83 billion.
| Key Ratios | 2018 | 2019 | 2020 | 2021 | 2022 |
| Cost Income Ratio (%) | 65.82 | 69.75 | 68.03 | 64.35 | 62.86 |
| Net Interest Margin (%) | 2.71 | 2.90 | 3.14 | 3.15 | 3.25 |
| CASA (%) | 51.32 | 48.78 | 44.84 | 46.17 | 48.6 |
| ROE | 8.70 | 5.20 | 9.72 | 14.74 | 15.49 |
For detailed analysis, Click here.
Eicher Motors Ltd
Eicher Motors Limited, founded in 1982, is the listed corporation of the Eicher Group in India, a significant participant in the Indian vehicle industry, and the world’s top manufacturer of middleweight motorcycles. Volvo Eicher Commercial Vehicles Limited is a joint venture between Eicher and Sweden’s AB Volvo (VECV) and as of today’s date, this is the share price of Eicher Motors Limited.
Financial
In Q2FY23, EML’s consolidated revenue increased by 55.8% year on year to Rs. 3,453cr, the highest quarterly figure ever. The rise was primarily attributable to increased sales of the company’s freshly released Hunter 350 motorbike. EML sold 2,03,451 bikes during the quarter, up from 1,23,515 in Q2FY22, a 65% YoY growth (9% QoQ). Domestic volume increased 73% year on year (16% quarter on quarter) to 1,83,067 units, while overseas sales increased 14% year on year to 20,384 units. The firm also reported strong EBITDA growth of 74.9% year on year to Rs. 822cr, with EBITDA margin improving 260bps year on year to 23.8%, mainly owing to cost reduction.
EML has increased its market share in both domestic and foreign markets. Due to the introduction of new products, its market share increased to 7% in the Americas, 9% in APAC, and 10% in EMEA. Domestically, the company’s market share in the above 125 cc category increased to more than 30% in H1FY23 due to stronger festive season sales. In addition, VECV had a market share of more than 8.0% in the heavy-duty vehicle class, with EML alone accounting for 7.3%.
| Key Ratios | 2018 | 2019 | 2020 | 2021 | 2022 |
| Net Sales Growth (%) | 27.46 | 9.28 | -6.57 | -4.73 | 18.09 |
| PAT Margin (%) | 20.86 | 20.02 | 19.54 | 15.03 | 15.62 |
| Current Ratio | 1.12 | 2.10 | 3.16 | 3.35 | 1.88 |
| ROCE | 45.33 | 37.41 | 24.36 | 16.42 | 17.81 |
| PE | 3.94 | 2.54 | 1.96 | 52.83 | 40.12 |
For detailed analysis, Click here.
Bajaj Finserv Ltd
Bajaj Finserv Ltd. serves as the holding company for the Bajaj group for different financial services operations. It provides asset acquisition solutions through financing, general insurance, family and income protection through life and health insurance, and retirement and savings solutions to millions of consumers and as of today’s date, this is the share price of Bajaj Finserv Ltd.
Financial
Results for Q2FY23, Bajaj Finserv, has reported a strong performance driven by its loan division. Consolidated topline growth was ~16% year on year to 20802 crores, driven principally by a strong revival in the loan business. Lower provisioning in the loan industry and life insurance profitability resulted in combined earnings of 1556.9 crores, up 38.7% year on year. AUM increased by 30.8% year on year in the loan business to 218366 crores, with stable margins and opex and provision resulting in substantial profit growth. GNPA and NNPA were 1.17% and 0.44%, respectively, in Q2FY23, compared to 1.25% and 0.50% in Q1FY23. General insurance gross written premiums fell 5% year on year to 4781 crores.
For detailed analysis, Click here.
Asian Paints Ltd
The Asian Paints group, founded in 1942, is India’s largest paint company, producing varnishes, enamels, lacquers, surface preparation, organic composite solvents, and thinners. It operates in 15 countries and 26 paint production plants worldwide, supplying customers in over 60 nations and as of today’s date, this is the share price of Asian Paints Ltd.
Financial
Asian Paints saw a muted volume offtake (flat YoY) in Q3FY23, owing to lower demand across regions amid high inflation, an extended monsoon, and an unfavorable base from the previous year. The company saw a decline in its premium product segment in the decorative category. Strong demand from auto OEMs aided the growth of the industrial paint segment. The company reported consolidated revenue of Rs.8637 crores, a 1% increase year on year. Despite lower raw material prices, Asian Paints has not raised its prices in Q3FY23.
Despite a poor product mix, gross margin increased by 182 basis points year on year (248 basis points quarter on quarter) in Q3FY23, helped by lower raw material costs. The EBITDA margin increased by 57 basis points year on year (414 basis points quarter on quarter), owing primarily to lower raw material costs. PAT increased 6% year on year to Rs.1097 crore, reflecting a recovery in EBITDA margin.
According to the company’s management, demand is recovering from December 2022 due to lower inflationary pressures. From December 2022 onwards, the company expects double-digit volume growth across its markets.
| Key Ratios | 2018 | 2019 | 2020 | 2021 | 2022 |
| Net Sales Growth (%) | 11.33 | 14.58 | 4.72 | 7.15 | 34.03 |
| PAT Margin (%) | 10.27 | 9.78 | 11.66 | 12.49 | 8.88 |
| Current Ratio | 1.55 | 1.47 | 1.73 | 2.03 | 2.00 |
| ROCE | 36.65 | 35.44 | 35.78 | 36.95 | 30.65 |
| PE | 52.72 | 66.38 | 59.10 | 77.51 | 97.54 |
For detailed analysis, Click here
Alternative Way to Invest
These large-cap stocks typically trade at a premium due to their strong fundamentals and track records, and they are also constituents of the Nifty 50 Index. Holding these large-cap shares in substantial volumes is nearly hard for retail investors.
On the other hand, one can invest in ETFs (Exchange Traded Funds) or Mutual Funds of the index. The only negative is that the investment will be spread among multiple companies. For example, the sum invested in the Nifty 50 index fund will include India’s top 50 companies. This will lead to over-diversification. Before investing in any AMC, one must also consider tracking error and expense ratios. So Invest in those AMC with a minor expense ratio, tracking error, and good track record.
Rationale
Because of their moderate volatility, these large-size stocks are ideal for a peaceful investment. Apart from capital appreciation of the stocks, these large-cap stocks also had an excellent Dividend Payout ratio. Therefore provides a steady cash flow to an investor as an additional income. These equities are also included in the Nifty 50 Index. These firms have weathered multiple business cycles and are the market leaders in their respective fields.
However, as with such companies, various risks are associated, such as volatility in raw material prices, the slowdown in the economy, etc. which can impact the Company’s performance.
So, we suggest you track them on a quarter-on-quarter basis in the upcoming year (2023) and also track the Edge Report section for any premium reports from our StockEdge Analysts. We would also advise consulting your SEBI registered investor before investing in any of these.
Until then, keep an eye out for the next blog on “Stock Insights.” Also, please share it with your friends and family.
Happy Investing!
