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Friday, September 13, 2013

What are Blue Chip Companies and how are they selected

I used to hear the term "Blue Chip companies" since i was a child, but it is only during the journey of financial freedom that i had enough craving to dig deeper into why these are termed as blue chip companies, what these companies are, and how are they selected.

How did the word "Blue Chip" originate?
As befits the sometimes high-risk nature of stock picking, "blue chip" term derives from the game of poker. The simplest sets of poker betting discs include white, red, and blue chips, with tradition dictating that the blues are highest in value. If a white chip is worth $1, a red is usually worth $5, and a blue $25.

What are Blue Chip companies?
According to the New York Stock Exchange, a blue chip is stock in a corporation with a national reputation for quality, reliability, and the ability to operate profitably in good times and bad. They usually pay good dividends also, since dividends bring stability to returns in bad times. In India, Blue Chip companies are the companies which constitute the BSE Sensex(30 companies) and NSE Index (50 companies)

Guidelines to select Blue Chips in India
SENSEX consists of 30 top scrips from different sectors. BSE has some strict guidelines to select scrip into SENSEX.  Scrip Selection Criteria for Sensex are
  • Listed history – Listing history of at least 3 months at BSE, preferably more than one year
  • Trading frequency – Should trade each and every trading day
  • Final rank - The scrip should figure in the top 100 companies listed by final rank. The final rank is arrived at by assigning 75% weight age to the rank on the basis of three-month average full market capitalization and 25% weight age to the liquidity rank based on three-month average daily turnover & three-month average impact cost.
  • Market Capitalization - The weight age of each scrip in SENSEX based on three-month average free-float market capitalization should be at least 0.5% of the Index. These are typically Large Cap stocks.
  • Industry/Sector Representation: Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE. The company should also be a leader in its own industry segment.
  • Track Record: In the opinion of the BSE Index Committee, the company should have an acceptable track record.
A similar parameter is held for NIFTY, which is an index of 50 shortlisted companies. 

Which are the Top 30 Blue Chip Companies in India
As on August 2013, these were the Top 30 Blue Chip companies that formed the Sensex. Depending on various factors as listed above, there are companies that can move into the list, and some which can move out of the list.
 

No. Company Industry
1 Bajaj Auto Ltd Automobile Two & Three Wheelers 
2 Bharat Heavy Electricals Ltd. Electric Equipment 
3 Bharti Airtel Ltd. Telecommunication - Service Provider 
4 Cipla Ltd. Pharmaceuticals & Drugs 
5 Coal India Ltd. Mining & Minerals 
6 Dr Reddys Laboratories Ltd. Pharmaceuticals & Drugs 
7 GAIL (India) Ltd. Gas Transmission/Marketing 
8 HDFC Bank Ltd. Bank - Private 
9 Hero MotoCorp Ltd. Automobile Two & Three Wheelers 
10 Hindalco Industries Ltd. Aluminium & Aluminium Products 
11 Hindustan Unilever Ltd. Household & Personal Products 
12 Housing Development Finance Corporation Ltd. Finance - Housing 
13 ICICI Bank Ltd. Bank - Private 
14 Infosys Ltd. IT - Software 
15 ITC Ltd. Cigarettes/Tobacco 
16 Jindal Steel & Power Ltd. Steel/Sponge Iron/Pig Iron 
17 Larsen & Toubro Ltd. Engineering - Construction 
18 Mahindra & Mahindra Ltd. Automobiles-Tractors 
19 Maruti Suzuki India Ltd. Automobiles - Passenger Cars 
20 NTPC Ltd. Power Generation/Distribution 
21 Oil & Natural Gas Corpn. Ltd. Oil Exploration 
22 Reliance Industries Ltd. Refineries 
23 Sesa Goa Ltd. Mining & Minerals 
24 State Bank Of India Bank - Public 
25 Sun Pharmaceutical Inds. Ltd. Pharmaceuticals & Drugs 
26 Tata Consultancy Services Ltd. IT - Software 
27 Tata Motors Ltd. Automobiles-Trucks/Lcv 
28 Tata Power Company Ltd. Power Generation/Distribution 
29 Tata Steel Ltd. Steel/Sponge Iron/Pig Iron 
30 Wipro Ltd. IT - Software 

So, if you are looking for companies that are stable, give you decent capital appreciation, pay good dividends, and you are ready to invest for long term, these are the first set of companies that you should look out for.

Cheers



Manoj Arora
Lead a Financially Free Life !!

3 comments:

  1. Stock market is the best online business. Even in commodities one can earn a lot. Their are many Mcx tips provider which can give huge profits.

    ReplyDelete
  2. Thank you Sir !
    Very good info for investors.. I started to invest in MF for the past 8 months...now i am going to look stocks for my Portfolio ! Those 30 are looks good, but what is the best time to purchase the stocks ? should i continuously monitoring the price and buy when its come down ?
    Please advise me !

    -Siva
    Chennai.

    ReplyDelete
    Replies
    1. Hey Siva ! We are launching the simplest book ever on Stock Markets this year. I suggest you wait for that before you start putting in any money here. Until then, suggest stay with Mutual Funds.
      Cheers my friend
      Manoj

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