Understanding Blue Chip Stocks

A Blue chip stock refers to the stock of a company that is well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capital ranging in the billions. These stocks generally are the market leader or among the top three companies in the industry. Dividend payments are not absolutely necessary for a stock to be considered a blue-chip but most blue-chips have a record of paying stable or rising dividends for years, if not decades. The term is believed to have been derived from poker, where blue chips are the most expensive chips.

A Blue chip stock is generally seen as a safe bet within the trading industry as it has seen many ups and downs of the market cycle over the course of its life. But the bankruptcy of General Motors, Lehman Brothers as well as many European banks during the 2008 global economic meltdown that even the best companies may not survive during times of excessive market stress.

As per market capitalization, the leading blue chip companies of India are Tata Consultancy Services (TCS), Reliance Industries, Oil and Natural Gas Corporation Limited (ONGC), Imperial Tobacco Company of India Limited (ITC), Housing Development Finance Corporation Limited (HDFC) Bank, Coal India, Sun Pharmaceutical Industries Limited, Infosys, State Bank of India (SBI) and Industrial Credit and Investment Corporation of India Limited (ICICI) Bank.