Blue Chip Shares: Many investors in the stock market are investing in penny stocks to smallcaps or midcaps as there is a huge upside potential. But if you want to earn every season and avoid big losses, blue chip stocks should be placed in bulk in your portfolio.
Investment in shares of blue chip companies is advised as they have stability and have a stable long term financial outlook. Apart from this, they also have a huge market share in their industry.
7 reasons to buy blue chip stocks
1) Stability: Whether the economy is in a boom or a recession, blue chip stocks do not experience major volatility. So it has more stability. They can better withstand any economic cycle. Therefore blue chip stocks are viewed as more solid investment instruments. When medium and small cap companies come under pressure.
2) Inclusion in indices: Blue chip stocks are included in most of the indices. It includes both Sensex and Nifty 100. This gives an idea of their strength and signs of growth. Companies like Reliance Industries, TCS, HDFC Bank, HUL are examples of blue chips in India.
3) Leaders in their respective sectors: Bluechip stocks are leaders in their industry. They have a strong order book and a strong balance sheet. Their market share is increasing and the customers are well aware of it.
4) Bargaining Power: In some cases blue chip companies have monopoly in their respective sectors. They can bargain better with the customers. Due to this their revenue comes at a steady pace. This outperformed the industry average growth.
5) More sound financial strength: The financial position of these companies is better. They have low debt burden, maintain adequate working capital and cash reserves. They also take loans at reasonable rates.
6) Blue chip companies are better equipped to weather market volatility when smaller companies down the shutters. When there is volatility in the market, blue chip companies emerge stronger.
7) Blue chip companies have a proven track record so they can win the confidence of the investors and generate regular earnings to the investors.