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
- 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.
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.