Best Blue Chip Stocks to invest in India now
One of my next financial goals is to create another one Crore in the medium term of 3-5 years. In the process, I am identifying several best investment plans which can double or triple my money. Some investment options can provide superior returns. One among them is the identification of a few blue chip stocks to invest now for medium to long term to get superior returns. Which are the best blue chip stocks to invest now? What parameters I have considered to identify blue chip stocks for medium to long term investment?
How I identified these Blue Chip Stocks for medium term to long term investment?
Blue chip stocks are those which has consistent growth along with stable returns. These blue chip stocks would create wealth over a period of time. They would be a little slow, however, provide consistent returns to investors.
Also Read: Which are the best best Investment Plans in India?
Here is how, I identified blue chip stocks for investment.
a) Annualized earnings growth in last 5 years: Filtered companies which are consistently growing in terms of earnings. An Annualised revenue growth of more than 20% is considered as the best way to identify a good stock.
b) Debt – Equity Ratio of < 2: This is the ratio of company financial leverage calculated by dividing total liabilities by shareholders' equity. Means for every Rs 1 of investment by shareholders, there should not be more than Rs 2 of liabilities. The lower the ratio, the greater the chances that this company is able to manage the funds within own sources.
c) Average ROE > 20%: You can consider stocks where the average Return on Equity (RoE) is > 20%. Return on Equity is nothing but the Net Income over the shareholders' equity. Picking up stocks which have > 20%.
d) Interest coverage ratio >2: Interest coverage ratio is the ratio used to determine how easily a company can pay interest on the outstanding debt. Interest coverage ratio = CBIT / Interest expenses. Any company where the interest coverage ratio is lower than 2, the performance of such company is questionable. Such companies struggle to make the interest payment from profits and such profits would decline year on year.
e) Market capitalization > Rs 3,000 Crores: Market capitalization is the total value of company outstanding shares. It is the simple arithmetic of outstanding shares issued by the company at market value. Any company where the market capitalization of > Rs 3,000 Crores can be considered as a blue chip stock. The higher the market capitalization, the higher the confidence in such company as they would have grown over a period of time.
f) PEG < 1.5: Price to Earnings growth (PEG) is key ratio that is used to determine the time it would take for an investor to double the money with such stock investment.
5 Best Blue Chip Stocks to invest in India now
1) Adani Ports and Special Economic Zone – CMP Rs 252
Adani Ports and Special Economic Zone Limited is India’s largest private multi-port operator. APSEZ is a part of the Adani Group, an integrated infrastructure corporation.
Annualised earnings growth in the last 5 years should be > 20% – Actuals are 21.5% – Test Passed
Debt Equity Ratio should be < 2. Actual is 1.73 – Test Passed
Interest coverage ratio should be >2 – Actuals are 3.9 – Test Passed
Market capitalization should be Rs 3,000 Crores – Actuals are Rs 55,336 Crores – Test Passed
PEG should be < 1.5 – Actuals are 0.84.
Adani Ports Stock price has potential to go up and can be considered as one of the best Blue Chip Stocks for medium term investment.
Also Read: Top midcap Stocks that can double or triple your money
2) Apollo Tyres – CMP Rs 222
Apollo Tyres Ltd is the world's 17th biggest tyre manufacturer, with annual consolidated revenues of Rs 117.1 billion in March 2016. It was founded in 1976. Its first plant was commissioned in Perambra, Thrissur, Kerala.
Annualised earnings growth in the last 5 years should be > 20% – Actuals are 20.08% – Test Passed
Debt Equity Ratio should be < 2. Actual is 0.24 – Test Passed
Interest coverage ratio should be >2 – Actuals are 16.7 – Test Passed
Market capitalization should be Rs 3,000 Crores – Actuals are Rs 10,962 Crores – Test Passed
PEG should be < 1.5. Actuals are 0.49.
3) KRBL – CMP Rs 251
KRBL Ltd. is India’s first integrated rice company with a comprehensive product chain.
Annualised earnings growth in the last 5 years should be > 20% – Actuals are 23.78% – Test Passed
Debt Equity Ratio should be < 2. Actual is 0.71 – Test Passed
Interest coverage ratio should be >2 – Actuals are 7.8 – Test Passed
Market capitalization should be Rs 3,000 Crores – Actuals are Rs 6,456 Crores – Test Passed
PEG should be < 1.5. Actuals are 0.8.
4) Mindtree – CMP Rs 487
Mindtree Limited is an Indian multinational information technology and outsourcing company headquartered in Bangalore, India and New Jersey. Founded in 1999, the company employs approximately 16,500+ employees with annual revenue of $700+ million.
Annualised earnings growth in the last 5 years should be > 20% – Actuals are 36.17% – Test Passed
Debt Equity Ratio should be < 2. Actual is 0.02 – Test Passed
Interest coverage ratio should be >2 – Actuals are 2,592.3 – Test Passed
Market capitalization should be Rs 3,000 Crores – Actuals are Rs 8,639 Crores – Test Passed
PEG should be < 1.5. Actuals are 0.41.
Mindtree Stock price has good potential to go up and one can invest as part of their investment portfolio.
Also Read: Best Real Estate Stocks to buy now in 2016
5) Sun Pharma Ltd – CMP Rs 741
Sun Pharmaceutical Industries Limited is an Indian multinational pharmaceutical company headquartered in Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations and active pharmaceuticals.
Annualised earnings growth in the last 5 years should be > 20% – Actuals are 24.5% – Test Passed
Debt Equity Ratio should be < 2. Actual is 0.27 – Test Passed
Interest coverage ratio should be >2 – Actuals are 15.2 – Test Passed
Market capitalization should be Rs 3,000 Crores – Actuals are Rs 189,231 Crores – Test Passed
PEG should be < 1.5. Actuals are 1.23.
Sun Pharma is somewhat disappointed investors in the last 1 year. However, I feel it has good potential to go up now and one should invest it for medium to long term investment perspective.
Readers, what do you feel about these top blue chip stocks to invest? Do you agree that the parameters considered by me are good? Would you like to add any other key parameter?
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Suresh
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While most of the stocks are good stocks, I wouldn’t yet call them as blue chips, for reasons mentioned below:
1. The promoter/management quality of any stock to be classified as blue-chip should be impeccable. This can’t be said of Adani group, which has been mired in controversies not only related to politics but also corporate governance. So APSEZ can’t be termed as a bluechip, at least as yet. And the Indian stock market doesn’t always reward companies with sound parameters/filters such as the ones u have mentioned. This may classify as a classic value stock, but I believe India is a growth market, not a value-oriented one, and it can really take a while for the stock to be noticed by the market in India, thus bringing down cumulative returns. This can be seen for the fact that the stock hasn’t gone anywhere in the last 2-3 years after reaching lofty heights initially post listing. On the positive side, it is in a high-growth area which should pay-off in times ahead.
2. Tyre companies are highly dependent on 3 major factors – commodity prices (rubber), auto demand and govt policies to tackle dumping from countries such as China. The first 2 are highly favourable currently and hence not only Apollo, but all tyre companies’ stocks are flying. I don’t see anything exceptional in Apollo. If at all I have to bet on a tyre stock, it would be MRF (market leader) or JK Tyres (one of the cheapest stocks in the market currently).
3. Mindtree – This is again in an industry where growth is facing severe challenges. When the likes of TCS and Infy are struggling for growth, it would be too much to expect the likes of Mindtree to outdo them. If at all I have to bet on some stocks in this Industry it would be Infy (for its able and dynamic management), Persistent (for its leadership in high-tech and niche areas such as Cloud), Zensar and Mphasis, the last 2 purely because they are run by able PE firms who will surely ensure that they will grow well with their backing to provide them an exit at some point.
4. KRBL is also a commodity play and is dependent on the commodity cycle, which has been favourable in the last few years.
If I have to replace the ones above, my list would be
1. CARE (niche area and as yet not identified by any MNC unlike ICRA – Moodys and CRISIL – S&P)
2. L&T Finance Holdings (management pedigree and the economic turnaround)
3. Persistent Systems (leader in high growth niche areas)
4. NBCC (assured growth for the next few years)
5. BEL (monopoly in defense equipment which is likely to be a focus area due to the increasing terrorism threat.)
HI Suresh,
Great work keep it up!! Keep going it’s too useful informative study from your end to identify these blue chip stocks.
Please advise the percentage amount to invest for medium term as you said 3-5 years to get the goal of 1 C in this stocks.
It will be very helpful if you have advice the percentage among this five stocks for investments.
Shall I enter in CMP please advice
Thanks and have a good day.
Regards
Karthik
There is noting like any fixed amount. Invest at every correction
3 out of 5 matched, atleast I know I am on the right path.. the difference is Aurobindo & Repco.
Mr.suresh
What is your view on tech Mahindra ? Also now IT sector growth is disappointing so why you are recommending mind tree ?
IT sector growth is disappointing, but some of the IT stocks are doing good. Tech Mahindra we need to wait before we make a entry
sir i am your big fan… one more thing very important
Number of Shares pledged or otherwise encumbered
agree devender