Blue-chip stocks for June 2023

A blue-chip stock is a common name for the stock of a financially stable large business that has been operating profitably for many years and has reported consistent earnings. Such companies most often pay dividends to the investors in these equities and many of them are high-dividend yielding shares.

The term “blue chip” is derived from the card game of poker, where a blue chip is typically the one with the highest value of all, above the white and red chips.

Therefore, blue-chip stocks are typically industry leaders or rank on top by market capitalization. Given their track record and proven financial history, these are mostly seen as safe investment bets.

Key Features of Blue-Chip Stocks

Large market capitalization: Market capitalization is a gauge of a company’s size and worth. Blue-chip companies are often large-cap companies, or stocks with a market value of billions of rupees.

Growth history: Blue-chip companies have a dependable history of consistent growth and promising futures. They might not be as attractive as younger or fast-growing stocks that may fetch higher returns due to the higher risk as they have already made their mark.

Stability: Blue-chip stocks are typically more resistant to market fluctuations. Having said that, they are not immune to shocks from the broader market or unforeseen situations relating to the company.

Dividends: Many blue-chip companies declare dividends, although it is not a necessary that all do so. Dividends are regular payments made to investors from a company’s revenue. Companies that issue dividends are usually mature, and therefore they may not need to reinvest as much money for their expansion.

Top Blue-Chip Stocks in India

Reliance Industries – Market Capitalization: Rs 17,05,204 crore

Reliance Industries is the largest conglomerate in India by market capitalization with a diversified portfolio of businesses including petrochemicals, retail, refining, and communication. Reliance Industries is the top blue-chip stock due to its strong financial performance and a long history of reliably delivering results, in addition to being one of the most liquid stocks in India.

Tata Consultancy Services – Market Capitalisation: Rs 11,86,923 crore

Tata Consultancy Services, commonly known as TCS, is India biggest information technology services and consulting company. With its headquarters in Mumbai, it is a part of the salt-to-steel Tata Group and operates in 150 locations across 46 countries. The company generated consolidated revenue of $27.9 billion for the year ended March 31, 2023 while net income was $5.22 billion. The company declared final dividend per share of Rs 24 for FY23, taking the total shareholder payout to $5.7 billion in the form of dividends.

HDFC Bank – Market Capitalisation: Rs 8,96,911 crore

HDFC Bank is one of the largest private-sector banks in India. It was among the first to receive approval from the Reserve Bank of India (RBI) to set up a private sector bank in 1994. As of March 31, it had a nationwide network of 7,821 branches and 19,727 ATMs and cash deposit and withdrawal machines across 3,811 cities and towns.

The bank's consolidated net profit for the year ended March 31, 2023 was Rs 45,997.1 crore, up 20.9% over the previous year. Total deposits jumped 20.8% during FY23 to Rs 1,883,395 crore while total advances rose 16.9% to Rs 1,600,586 crore.

ICICI Bank – Market Capitalisation: Rs 6,60,233 crore

ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a number of delivery channels and through its group companies. The bank’s total assets stood at Rs 15,84,207 crore at March 31, 2023. The bank's core operating profit grew by 28.1% year-on-year to Rs 49,139 crore ($6.0 billion) in the year ended March 31, 2023 while total deposits grew by 10.9% year-on-year to Rs 1,180,841 crore.

Hindustan Unilever – Market Capitalisation: Rs 6,29,126 crore

Hindustan Unilever is India’s biggest fast-moving consumer goods company. It has over 50 brands across 16 categories such as fabric solutions, home and hygiene, life essentials, oral care, tea, coffee, ice cream & frozen desserts, foods and health food drinks, among others. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf, Pond’s, Vaseline, Lakmé, Dove, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s, Horlicks and Pureit.

Its turnover at Rs 58,154 crores grew 16% for FY23 with underlying volume growth of 5%. EBITDA margin remained healthy at 23.4% despite high inflation during the year. The company declared total dividend of Rs 39 per share for FY23, an increase of 15% versus FY22.

ITC – Market Capitalisation: Rs 5,53,606 crore

ITC is present in a variety of sectors, including FMCG, hotels, software, packaging, paperboards, specialty papers, and agro-processing. It is made up of 13 enterprises across five market areas and exports its goods to 90 different nations.

The company’s FY23 gross revenue grew 17.6% to Rs 69,481 crore while profit after tax jumped by nearly a quarter to Rs 18,753 crore. EBITDA also grew by more than quarter to Rs 23,944 crore during the fiscal. The company declared a dividend of Rs 15.50 per share, including a special dividend of Rs 2.75 a share, during the year.

Infosys – Market Capitalisation: Rs 5,41,703 crore

Infosys is an Indian multinational information technology company that provides business consulting, information technology and outsourcing services. Headquartered in Bangalore, the company was set up over 40 years ago and now has clients in more than 56 countries. In FY23, Infosys’ revenue grew 11.7% to $18.21 billion while its operating margin contracted to 21.0%. The net profit grew 0.6% to $2.98 billion and diluted earnings per share rose to $0.71 in FY23 from $0.70 in FY22.  The company added 115 clients in the last quarter of the financial year, taking its overall active client base to 1,872 as on March 31, 2023 from 1,741 a year ago.

State Bank of India – Market Capitalisation: Rs 5,14,414 crore

Government-owned State Bank of India (SBI) is the largest commercial bank in India with a network of over 22,000 branches spread across India.  It has spread its presence globally and operates across 229 offices in 31 foreign countries.  The Bank also has diversified businesses through its various subsidiaries such as SBI General Insurance, SBI Life Insurance, SBI Mutual Fund, SBI Card, etc.  SBI reported a stellar 58.6% growth on profit after tax to Rs 50,232 crore in FY23, backed by a 20.6% rise in net interest income to Rs 1.45 lakh crore. Asset quality showed marked improvement with Gross NPA contracting to 2.78% as on March 31 from 3.97% a year ago and net NPA improving to 0.67% from 1.02%.

Housing Development Finance Corp – Market Capitalisation: Rs 4,88,637 crore

Housing Development Finance Corporation, commonly known as HDFC, began operations over 45 years ago and now offers home finance through a network of 724 offices across India. It also has a presence in banking, life and general insurance, asset management, venture capital, realty, education, deposits and education loans. The lender is being merged into HDFC Bank.

The financial behemoth reported 18% growth in FY23 profit after tax to Rs 16,239 and declared an interim dividend of Rs 44 per equity share. The company showed excellent use if new technologies with 94% of new loan applications being received through digital channels. The gross non-performing loans as on March 31 improved to 1.18% of the portfolio from 1.91% a year ago.

Bharti Airtel – Market Capitalisation: Rs 4,65,177 crore

Bharti Airtel was founded in 1995 and is now a leading telecom company with operations in 17 countries across South Asia and Africa. Apart from mobile and other telecom services, it also offers broadband, digital television, and banking services among others.

While the company came under pressure for the past couple of years due to competition, its financials are now showing signs of improvement. In FY23, consolidated revenues grew 19.4% to Rs 1.39 lakh crore and net income almost doubled Rs 8,346 crore.  The company is also consolidating its customers and its worldwide user base grew 5.9% to over 500 million.

Advantages of Blue-Chip Stocks

Blue-chip companies are closely tracked by brokerages, investors, and research firms. Their financial positions are fairly predictable and have less chances of any upsets.

Given their strong financial history, blue-chip companies are known for having large revenue and profits, a portion of which they usually distribute as dividends.

Having been in existence for a long period of time, blue-chip companies have large profit reserves that they use for bonus issues, which provides supplemental income for the investor.

At times, blue-chip companies also use the cash flows that are not used for business expansion to buy back shares from existing investors at a higher price than the market price.

Blue-chip stocks are largely liquid in nature and often bought and sold in the market due to their creditworthiness and stability. When investors require cash, it becomes simpler for them to sell their equity holdings.

Blue-chip fund managers can similarly readily invest in and exit from such stocks. The fact that blue-chip companies offer significant liquidity is one of their strongest features.

However, there are risks attached to investing in blue chip companies as well. As with any stock, blue chip stocks are also not insulated from the broader market movements and global risk factors.

Risks of Investing in Blue-Chip Stocks

Large-cap blue chip firms are often less agile than their mid-cap and small-cap peers due to their size and scope of operations. The blue-chip corporations might not be able to as react quickly and capitalise on any favourable catalysts that may emerge in the economy.

Blue-chip investments are low risk, low return investment in the short-term. As they are already large, their rate of growth is slower than the smaller companies due to a higher base size. Therefore, they have comparatively lower returns than mid- and small=cap stocks.

Their results are more predictable and while they tend to generate consistent returns, the returns may not be as high as their smaller counterparts.

While blue-chip companies may work as well-oiled machines there are chances of them becoming obsolete. If they are unable to adapt to the changing market demands and economic conditions, there is a possibility of such companies succumbing to the conditions.

Conclusion

Overall, many investors continue to favour blue-chip companies for their portfolio. They are often seen as the foundation of a well-diversified investing portfolio.

Blue-chip stocks have the potential to expand over the long term and can provide a portfolio stability and consistency. With proper research and a well-thought-out investment plan, they can be an attractive and profitable option.