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Definition: Blue chip stocks are shares of very large and well-recognised companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions. Blue chip stocks generally cost high, as they have good reputation and are often market leaders in their respective industries.
Description: Oliver Gingold, who worked at Dow Jones, coined the phrase ‘Blue Chip’ in 1923. This term came into vogue after Gingold, while standing near the stock ticker at a brokerage firm, noticed that several stocks traded at $200 or more per share. He called them ‘Blue Chip Stocks’ and wrote an article on them. That’s how the phrase was born. Since then the term has been used to refer to highly-priced stocks, but now it is used more commonly to refer to high-quality stocks. These are stocks that generally deliver superior returns in the long run. Some people also relate blue chip stocks to blue betting disks in the game of poker, where the blue disk has the highest value while the white one has the lowest. Several parameters can be considered to identify blue chip companies. They include consistent annual revenue over a long period, stable debt-to-equity ratio, average return on equity (RoE) and interest coverage ratio besides market capitalisation and price-to-earnings ratio (PE). As per market capitalisation, India’s leading blue chip companies today are State Bank of India (SBI), Bharti Airtel, Tata Consultancy Services (TCS), Coal India, Reliance Industries, HDFC Bank, ONGC, ITC, Sun Pharma, GAIL (India), Infosys, and ICICI Bank.
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