Best Blue chip stocks to Buy now in India 2024

In this article, we will discuss

• What is Open Interest?
• How Open Interest is Calculated?
• How to Use OI for Intraday Trading?
• Relationship Between Open Interest and Volume
• Importance of Open Interest in Options Trading
• Factors That Affect Open Interest
• Limitations of Open Interest as a Trading Indicator
• Conclusion

Open interest is key to understanding the unseen opportunities and risks in the share market. Open interest is like breadcrumbs left behind that reveal a hidden network of trades and signals what traders are plotting next. If you want an edge in the share market, make open interest your new best friend. Follow this blog to learn what open interest is, how open interest forms, what it tells you about market sentiment, and how to leverage it to your advantage. Let's dive into the concept of open interest and uncover how it impacts stock market prices.

What is Open Interest?

Open interest meaning is the total number of outstanding options and futures contracts that have not been settled, closed out or exercised. Simply put, it is the number of existing active positions in options and futures contracts. For example, OI increases by one if a buyer and a seller enter into a new call option contract. OI decreases by one if the same buyer and seller close their contract by taking an opposite position. If the buyer sells his contract to another buyer, OI remains unchanged, as there is no net change in open positions.

How Open Interest is Calculated?

OI is calculated by counting the number of open contracts at the end of each trading day. A contract opens when a buyer and a seller create a new position. A contract is considered closed when an existing position is offset by an opposite position or exercised.

For example, let us assume that four traders are in the market: A, B, C, and D. They trade Nifty futures contracts. Each contract represents 75 units of the Nifty index.

• On day 1, A buys 1 contract from B, who sells 1 contract to A. This creates a new contract in the market, and OI increases by 1.
• On day 2, C buys 2 contracts from D, who sells 2 contracts to C. This creates two new contracts in the market, and OI increases by 2.
• On day 3, A sells 1 contract to C, who buys 1 contract from A. This closes an existing contract in the market, and OI decreases by 1.
• On day 4, B buys 1 contract from D, who sells 1 contract to B. This closes another existing contract in the market, and OI decreases by 1.

The table below summarizes the transactions and OI changes:

How to Use OI for Intraday Trading?

OI can be used as an indicator of market sentiment and trends. Generally, increasing OI means new money flows into the market, indicating more interest and activity in the contract. This can signal a continuation of the current trend. Decreasing OI means that money is leaving the market, indicating less interest and activity in the contract. This can signal a reversal of the current trend.

For example, if Nifty futures are in an uptrend and open interest Nifty is increasing, more buyers are entering the market and pushing the price higher. This can be a bullish sign for intraday traders who want to go long on Nifty futures. On the other hand, if Nifty futures are in a downtrend and OI is decreasing, more sellers are exiting the market and pulling the price lower. This can be a bearish sign for intraday traders who want to go short on Nifty futures.

However, OI alone is not enough to determine the market direction. It should be used with other indicators such as price action, volume, and technical analysis. Sometimes, OI can increase or decrease without any significant change in price or volume. This can indicate a consolidation or indecision phase in the market. In such cases, intraday traders should wait for a clear breakout or breakdown before taking any position.

Relationship Between Open Interest and Volume

OI and volume can provide different insights into the market behavior and direction. The relationship between open interest and the volume of options is an important one to understand:

• Volume refers to the total number of option contracts traded during a specific period, usually daily. It measures trading activity for that option. Open interest refers to the total number of outstanding option contracts that have not been closed or exercised. It represents the number of contracts still held by investors.
• For open interest to increase, volume must be higher than the number of contracts that expire, are exercised or closed. This indicates new positions are being opened.
• However, volume can be high without a corresponding increase in open interest if most trades involve existing contract holders liquidating their positions or changing sides (sell to close and buy to open).
• Similarly, open interest can remain flat or decline even if the volume is high if the new trades mainly involve existing contract holders. The key is whether net new positions are being opened.
• Generally speaking, a rising trend in open interest and volume is the most bullish signal, as it shows accumulation by new buyers entering the market.
• Declining open interest alongside declining or flat volume suggests a lack of interest and weakens the option's position.
• Spikes in volume without a corresponding increase in open interest are often temporary and insignificant. They represent a short-term surge in liquidity rather than a sustained buildup of new positions.

Importance of Open Interest in Options Trading

Open interest is an important factor to consider when trading options. Here is some importance of open interest in the share market:

• Market Sentiment: Higher open interest in call options shows bullish sentiment, while higher put open interest indicates a bearish sentiment. Tracking changes in close calls and putting open interest over time can provide insights into shifts in market positioning.
• Strength of a Trend: Rising open interest in the direction of a stock's move confirms and strengthens a trend while declining open interest questions the sustainability of the move.
• Influences Option Prices: Higher option open interest tends to push option premiums higher as more participants compete for contracts. This makes options with higher open interest more expensive.
• Liquidity: Open interest is closely correlated with options liquidity. The more outstanding contracts there are, the more potential counterparties exist, making entering and exiting positions easier.
• Volatility: Higher NSE open interest tends to coincide with higher volatility as more traders are exposed to the underlying security's price fluctuations. This translates into wider bid-ask spreads.
• Signals Potential Supply and Demand: High open interest represents the potential supply of contracts should option holders decide to exit their positions. Conversely, low open interest means little potential buyer demand.
• Establishes a Baseline: Comparing current open interest to historical levels provides context for interpreting the significance of changes in new open interest. Spikes above or drops below the norm may be more meaningful.
• Impacts Exercise Risk: The higher the open interest, the greater the likelihood that option contracts will be exercised if they move deep into the money. This increases exercise risk for option writers.

Factors That Affect Open Interest

There are a few key factors that can affect the open interest of an options contract:

• Expectations of Price Movement: If traders expect the underlying stock price to move in a certain direction, they will buy more options contracts, increasing open interest. Conversely, if traders expect little price movement, open interest may decrease.
• Time to Expiration: Options closer to expiration tend to have a lower open interest as traders close out positions or allow contracts to expire. Options with more time left until expiration typically have a higher open interest.
• Contract Specifications: Certain strike prices, option types (call vs put), and contract sizes may be more popular among traders, resulting in higher open interest for those specific options.
• Recent News or Events: Big news about the underlying stock can suddenly drive up open interest as traders react and take positions based on the news.
• Options Activity: When major traders or institutions take large options positions, it can significantly increase open interest for those specific contracts.

Limitations of Open Interest as a Trading Indicator

Open interest is the total number of open contracts on security. It is used as an indicator to determine market sentiment and the strength behind price trends. However, open interest has some limitations as a trading indicator. Some of them are:

• Open interest does not show the direction of the trend, only its intensity. It does not distinguish between long and short positions, only the total number of contracts.
• It is not updated in real-time but only at the end of each trading day. This means that the indicator does not reflect intraday changes in open interest.
• Open interest can be influenced by factors other than market sentiments, such as rollover, arbitrage, hedging, and expiration. These factors can cause open interest fluctuations unrelated to the underlying price trend.
• It can sometimes give false signals or contradict other indicators. For example, if open interest rises during an uptrend, it can indicate either new buying or short covering. Similarly, if open interest falls during a downtrend, it can indicate either long liquidation or new short selling.

Conclusion

In summary, open interest provides valuable insights into the behavior of an options or futures market. It indicates the total number of contracts not offset or liquidated by opposite trades. Combined with price and volume data, open interest can reveal whether a price move is due to panic buying or selling or a fundamentally driven shift in demand and supply. Open interest tracking is crucial for traders and investors looking to gauge market sentiment and position themselves accordingly. Together

In this article, we will cover

• What are best Blue chip stocks?
• Characteristics of Blue chip Stocks
• List of Best Blue chip Stocks to Buy now in India
• How to evaluate and build the portfolio of best blue chip stocks
• Detailed overview of the Best Blue Chip stocks to buy now in India

What are Blue chip stocks?

The blue-chip stocks to buy are stocks issued by financially sound and fundamentally strong  blue chip companies with humongous market capitalisation and enviable market reputation. Blue Chip companies refer to equity shares of companies with larger market capitalisation. These companies have entrenched market operations running for many years. The best blue-chip shares to buy now usually are stocks of the bellwethers and trailblazers, currently occupying the highest ranks of any industry. Given the large size, a Blue Chip company is easily recognisable and financially stable with a large distribution network. These companies typically sell quality products and services that are widely accepted across the country. Because of these qualities, such companies are more resilient to economic downturns. They may continue to grow or operate profitably, even in adverse market conditions. And this is one of the reasons these companies are relatively less sensitive to wide market fluctuations when compared to Mid Cap and Small Cap companies. Blue Chip companies are stalwarts in their own industry and belong to the mature lot on exchanges. The term ‘Blue Chip’ originates from the round of poker where the blue colored chips are relatively more valuable. Similar to the game, these stocks which are more valuable in the market and hence are termed  Blue Chip stocks .

Characteristics of Blue chip Stocks:

• Consistent Returns

Blue Chip companies are large and pretty well-established, having a history of consistent performance. The best blue-chip stocks to buy have an enticing history of providing consistent returns to the shareholders in the form of considerable dividend payouts at regular intervals of time. Hence the best blue-chip stocks to buy have a glorious history of attractive returns and reasonable growth in the value of the share even in times of economic doom. Hence, we have dissected the history of the blue-chip companies and undertaken extensive analysis of past performance, in conjunction with the economic environment and duly prepared a list of best blue-chip shares to buy now.

• Financially Resilient

These companies are financially resilient with negligible to zero debt levels and are capable of surviving turbulent economic situations. Most of the best blue-chip stocks to buy are market leaders in their respective industries.. Further, it is often seen that a Blue Chip business is less affected by unfavorable financial conditions during recessionary periods.

• Low Risk

Investing in Blue Chip stocks is recommended for investors with a conservative risk profile to meet their long term goals of at least 5-7 years. But investing in these companies is ideal for all investors to grow their wealth over a long period without exposing themselves to a lot of risk and volatility. Some portion of an investor’s portfolio can always be exposed to blue chip stocks for stable less risky returns.

• Portfolio Diversification

The blue-chip stocks to buy are stocks of well-diversified companies having multiple sources of revenue. Hence, the losses suffered by one channel are mitigated by the profits earned in another medium. Therefore, it allows the investors to diversify the associated risks in investing in blue-chip stocks as the companies have spread their tentacles in different sectors and industries. This not only serves as a cushion against losses suffered by one sector but also provides resilience in times of operational setbacks. Apart from the characteristics discussed above, an investor must keep a few key financial characteristics of blue chip companies in mind before investing. Most Blue Chip companies in India have market capitalization greater than Rs. 50,000 Crs. These companies have a track record of consistently increasing their topline and operating margins on an upward trajectory. They are generally debt free companies, however, a low and stable debt to equity ratio may also be considered as a significant characteristic. Blue Chip companies are known for rewarding their loyal shareholders with consistent and increasing dividends. Also, these companies should have a high return ratio (both return on equity and return on capital employed), high interest coverage ratio, ability to consistently generate cash flows, etc. Loving the valuable content? Invite friends to Samco to explore our informative blogs. Earn voucher rewards for each successful referral.  Start referring now and reap the rewards

List of Best Blue chip Stocks to buy now in India

Reliance Industries Ltd.

Reliance Industries is India’s largest company. The company is primarily engaged in the business of oil exploration, refining of petroleum and marketing & distribution of the same along with operations in petrochemicals. Reliance has diversified further by foraying into the retail, telecom and technology space with Reliance Retail and Reliance Jio, respectively. With all the businesses combined, the company pulled in revenues of over Rs. 8.77 crores in FY23. A majority of the company's cash flows come from the oil sector, but it has been aggressive in diversifying into companies that may help it achieve rapid growth and utilize its size in the proper sequence while mitigating the risks associated with the oil business. The company has is expanding its business in Reliance Jio Infocomm. Apart from this, it has been focusing on its Retail business under Reliance Retail. It has also made a couple of acquisitions under the brands.

The company has plans to achieve carbon neutrality by 2035 thereby focusing on diversifying across energy and other industries while continuing to invest in the oil business. Reliance has successfully become net debt free which is positive as peers are usually more debt laden at the given scale. The stock is expected to offer diverse growth opportunities over the long term. Along with this, the company has Reliance Jio and Reliance Retail among other digital investments which have been effectively contributing to the margins and growth of the company. Some of key risks include volatility in crude oil prices and industry cycles and competitive intensity in Retail and Telecom business.

Britannia Industries Ltd

Britannia is one of the largest FMCG companies in India, with a portfolio across multiple products such as Biscuit, Bread, Cake, Rusk, Dairy and Adjacencies. Biscuits, from which the company derives over 75% of its revenues, is India’s largest food category and is considered as an essential, in practically every Indian family’s consumption basket. It is one of the most deeply penetrated categories in the country, reaching over 90% of the households. Bread is considered as a staple food in many parts of our country. Consumer preference for healthy & premium products is providing significant opportunity in this category. The company derives about 18% of its revenues from bakery products which includes bakery products. Britannia is being well positioned with a strong management team, technology interventions and robust processes. Financially, the company has delivered a robust set of numbers, with strong net profit growth of 24% CAGR over the past 10 years.

It has also delivered a strong ROE of 76% while the ROCE stands at 55.5% in FY23, indicating a strong return on capital deployed by the company. The company faces risk from any changes in trends towards its product offerings such as a trend wherein people move away from biscuits towards other products, thereby affecting the business of the company. Another risk the company faces is from any changes in food regulations which might cause it to change its ingredient and product mix, thereby possibly affecting its margins earned. Any impact on the input costs, such as volatility and rise in grain prices can also have an adverse impact on the company profits and result in business slowdown as well.

Tata Consultancy Services Ltd.

Tata Consultancy Services Ltd is the largest IT company in India by Market cap and the world’s largest IT Services provider. The company is involved in providing a wide spectrum of services such as IT Services, Consultancy, business solutions, digital transformation, and IT products and platforms. The company is also foraying into newfound and developing technologies such as cloud-based computing, machine learning, AI and Blockchain-based technology. Its majority revenue segment is BFSI which forms about 38% of the total revenue pie for the company followed by Communication, Media and Technology, Retail and Consumer Business, Life Sciences and Healthcare , Manufacturing and Others. TCS’ major revenue generation is from North America contributing to about 53%, UK and Continental Europe both are 15% each.

On the other hand, India is at 5%. The company has a proven track record which is reflected in the company’s financials as it has been delivering industry-leading results such as 5-year average ROE and ROCE of 41% and 55% respectively. TCS has also seen consistent growth with revenue growing at a CAGR of 12.8% over the last 5 years while the net profits saw a 10% CAGR for the same period. TCS’ superior execution metrics, full stack portfolio (better deal count across verticals) and industry drivers will support growth going forward. Given TCS is a service export-oriented company, changes in currency rates can affect the demand for the services.

Godrej Consumer Products Limited (GCPL)

Godrej Consumer Products Limited (GCPL) is a part of the over 125-year-young Godrej Group. Its portfolio and heritage are in democratisation, and this is what its strategy hinges on- making amazing quality products available at accessible price points. GCPL’s geographic footprint comprises some of the largest and fastest-growing emerging economies in the world. However, its top categories in these countries, such as Household Insecticides, Air Care, and Hair Colour, are underdeveloped, with significant headroom for growth. The firm sees this as a huge opportunity for value creation via the application of its winning strategies for category development. As category leaders, the strategy is to ramp up innovation-led growth and discover new ways to disrupt its categories.

New strategic pillars and philosophy adopted by the New MD & CEO, Mr. Sudhir Sitapati are expected to unleash the incredible potential of the company and propel it into its next phase of growth. His strategic clarity and excellent execution capabilities have already started impacting the company positively. The number one priority is to bring the volume growth back. GCPL will also focus on household insecticides and the growth of its Indonesia business, while profitability and governance will be targeted in Africa.

As the company's renewed strategy takes centre stage, it is likely to experience a turnaround in its domestic and international business, as well as an improvement in financials. The clear plan for the business is to achieve the ambition of double-digit volume growth in the medium term. However, competitive market conditions and new entrants to the market may lead to an aggressive product pricing strategy.  Moreover, the company remains vulnerable to raw material price fluctuations.

Asian Paints Ltd.

Asian Paints is no.1 paint company in India and enjoys a dominant share of over 50% in the organized domestic paints market. The firm have the largest distribution and retail network in the Indian paints industry. The company derives about 88% of the revenue from the Decorative and Home Décor businesses. Driven by its leadership position, the company has registered revenue at a CAGR of 15% and a profit CAGR of 15% over the five fiscals. Strong brand equity, extensive distribution network, and wide product portfolio have enabled it to maintain a strong market position. Due to the company's leadership position, it enjoys a healthy operating margin of 18% as of FY23 which is higher than peers. Debt to equity has always been negligible and currently stands at 0.06 times. Asian Paints’ financial risk profile continues to remain strong, marked by a net debt-free balance sheet. The company’s faces the risk of unprecedented rise in its raw material prices. However, the company took some price hikes to offset this. The long-term structural story remains intact with drivers such as improved traction in business verticals, gains in market share and growth opportunities in rural and small towns.

Avenue Supermarts Ltd.

Avenue Supermarts Ltd. is a Mumbai-based company, which owns and operates D-Mart stores. D-Mart is a national supermarket chain that offers customers a range of home and personal products under one roof. DMart has a consistently growing presence across India. As of March 31, 2023 the Company had 324 stores, spread across 10 states, 1 union territory, and NCR. DMart offers varied, everyday-use items to its customers with a prudent product mix. The products on offer at its stores can be broadly classified into three categories – Foods, Non-foods, and General Merchandise and Apparel. With a strategy of maintaining cost efficiencies while offering the best customer value, DMart has witnessed stable performance across financial and operational parameters over the years. The Company’s net operating income increased at a CAGR of 23.30% while net profits rose at a CAGR of 24% over the last 5 years. The revenue per sq. ft. of the company has seen improvement over the years with currently standing at Rs 31,096 as of FY23.

Strong procurement abilities, lower priced products along with healthy cost control measures all may result in higher growth in footfalls going ahead. This leads to high inventory turnover and revenue per sq. ft. and translates into industry-leading retail store productivity. Avenue Supermarts is an apt benefactor of substantial improvement in geographical diversity and sales channel mix which would result in a higher scale of operations with increased operating profitability over a period of time. Risks would include a significant weakening of operating margin due to large gestation losses from new stores, larger than expected debt-funded capex increasing the now comfortable debt-to-equity ratio.

HDFC Bank Ltd.

HDFC Bank is one of India’s top private sector banks. As of March 31, 2023, the bank’s consolidated total asset was at INR 25.3 lakh crore. In India, the bank operates 7,945 branches and 18,130+ ATMs. The bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its group companies. HDFC Bank has long been regarded as a benchmark in the banking industry. Despite RBI-induced credit card market share losses and investor concerns about changes in top leadership, HDFC Bank is a rock-solid high-growth banking brand with excellent asset quality and best-in-class return ratios. Despite the sheer size of the bank, it has consistently delivered astonishing loan book growth and has gained market share. Its loan book has increased at a CAGR of 20% in the past five years. This phenomenal rise has not come at the expense of poor asset quality. This is visible from its GNPAs which have remained best-in-class and have been in the range of 1.2 to 1.4% in the past five years.

With the Pandemic behind us, the bank has stated its intention in ramping up its retail loan book. With the Merger being completed, the mighty mortgage book of HDFC Ltd is transferred to HDFC Bank. HDFC Bank’s loan book now has 30% mortgage. This long tail product would aid the bank in cross-selling and lowering its risk weighted assets thus being able to effectively use its capital. The Bank would face near term headwinds like pressure on Margins and some short-term hiccup on asset quality. However, this is transient in nature. The stock has corrected significantly and thus appears even more attractive at current valuations.

Model Portfolio

In order to get an exposure to Best Blue chip Stocks, you would need a total of Rs. 27,368 for the below curated portfolio as on Oct 30, 2023.

You could invest in the above model portfolio or if you’d like to invest in a ready-made basket of stocks without having to worry about researching the same, you could invest and create wealth with  StockBasket.

How to evaluate and build the portfolio of the best blue-chip stocks?

Check out our video on how to evaluate and build a solid portfolio of the  best blue chip stocks in India.

Detailed overview of the Best Blue Chip stocks to buy now in India

The table below covers some of the most important factors while evaluating Blue Chip stocks such as the return ratios – RoE, operating margins, sales and earning growth, market cap, etc.

Blue Chip Stocks (Excluding Banking Companies)

Blue Chip Banking Companies

Other links you may find useful:  https://www.samco.in/knowledge-center/article-categories/stocks-to-buy/ You can check the live prices and trade India’s best large cap stocks at the lowest brokerage with SAMCO, India’s leading discount brokerage. Open a  Free Demat and Trading Account today! Loving the valuable content? Invite friends to Samco to explore our informative blogs. Earn voucher rewards for each successful referral.  Start referring now and reap the rewards

, price action, volume and open interest form a complete picture of what is occurring beneath the surface of any derivatives market.  

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