What Are Growth Stocks and Blue Chip Stocks?

13 July, 2023

One of the most popular avenues of investment is online stock trading. Whether you are a student, housewife, working professional, or expert trader, the market treats everyone alike. All you need is good research, patience, and a knack for understanding how the stock market works.

Talking about how things work in the stock market, you must know different types of stocks, especially blue chip stocks and growth stocks. So what are blue chip stocks? What is a growth stock? Let's find answers to these questions.

What are Blue Chip Stocks?

To understand what blue chip stocks are, let's start with the meaning of blue chip companies. These big and well-established companies have been operating for years and have large market capitalisation. Trading shares of these companies are called blue chips. It is relatively safe to make blue chip investments as these shares are not very sensitive to market fluctuations due to their large market cap.

Following are the top 5 blue chips of India as per market capitalisation:

(Source: BSE India;* Data as on May 19, 2023.)

Reasons to Invest in Blue Chip Stocks

After learning the blue chip shares meaning, let's find out why it is a good idea for you to invest in blue chips:

1. Good Dividends: Blue chip stocks can perform well despite economic distress due to their large market capitalisation and fundamentals. Thus, they can generate high profits and distribute a portion of them as dividends to their shareholders.

Moreover, they also sometimes do bonus issues, which can benefit your portfolio.

2. Fairly Predictable Performance: The performance of blue chip stocks is extensively researched and followed by many brokerage and research firms. Furthermore, these stocks are less vulnerable to market fluctuations. Thus, predicting their performance for your investment objectives is possible.

3. High Liquidity: Due to their strong company fundamentals and price stability, all hold blue chips, whether HNIs, retail, domestic, or foreign investors. Thus, they are highly liquid.

What are Growth Stocks?

Growth stocks are the stocks of companies that have performed better than their counterparts in terms of revenue generation as well as profitability.

There are various ways in which the potential for growth of a stock can be gauged. The following are some of the useful parameters in this regard:

• Latest Trends: You can observe which products or services are increasing more and more with time and try to navigate the companies which offer these products or services.
  
  

• Profitability Ratios: Numbers are great truth-tellers. You can look at a company's profitability ratios like its Earnings Per Share (EPS) ratio or Price-to-Earnings (P/E) ratio to determine how well it is financially doing.
  
  

• Balance Sheet: You can also look at expanding companies and maintaining a debt-to-equity ratio of less than 30%. These companies are expanding but without involving themselves in too much debt.
  
  

We have also collated data for some of the stocks which feature a high Earnings Per Share (EPS) ratio at the moment in the country:

(**These stocks are listed on BSE; ***Data as on May 19, 2023.)

Why Invest in Growth Stocks?

So, why should you invest in these growing shares? Following are some of the key reasons that can help you understand why it is beneficial to invest in growth stocks:

1. High Return: One of the primary reasons for investing in growth stocks is their high return. These stocks can help you meet your investment objectives with their upward trajectory.
   
   

2. Helps Beat Inflation: The returns generated by the growth stocks can help you beat inflation and protect your wealth from losing its value to growing prices in the economy.
   
   

If you do not wish to invest in multiple growth stocks, you can also choose to invest in growth stock mutual funds and reap the benefits of high growth potential.

Hybrid Solution: Multibagger Blue Chip Stocks

Are you wondering if there is a category of stocks that can give you both price stability, like blue chips and extraordinary returns, like growth stocks? Then, the answer is yes! For this, you can choose to invest in multi-bagger blue chip stocks.

Multibagger blue chips stocks are those blue chips that can provide investors with an exceptional return on investment which could be as high as 2X, 3X, or even 4X of the invested amount.

Take Away

If you are looking for relatively stable stocks to market shocks, you can consider investing in blue chip stocks; however, if you are looking for something that can boost your portfolio, you can consider growth stocks. And, if you are looking for both stability and high returns, then multi-bagger blue chip stocks can be a good choice for you.

However, it is always important to remember to invest after doing a thorough research and checking if it fits your risk profile. Feel free to reach out to us for any queries.

If you want to start investing or trading in these stocks, you can easily open a Demat account with HDFC Bank

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​​​​​​​*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.