Saturday, November 21, 2015

Investing in BLUECHIPS: Does it make sense : Let's understand it the L&T way!

It is a psychological tendency to buy stocks which are relatively low priced. Investors usually donot spend lot of time on face value, growth potential, leadership position of the company they invest in. Rs.50 a share looks cheaper when compared to Rs.1500 a share. And their rational is If Rs.50 grows up to Rs.100 it is a 100% gain and it is easier than Rs.1500 growing to Rs.3000. But the crucial factor many miss out is the stability in the business and the safety of investing in a leadership company. Though small size companies have huge growth potential, the risk of them fizziling out is also there. Above all, low priced stock doesnot mean cheap valuation.

Let us understand the power of Investing in a Large Cap company, taking L&T as an example.

Larsen & Toubro:

  • It is India's largest engineering and construction company.
  • It is a 70 Year+ Old Company..
  • Has subsidaries operating in 
    • Engineering
    • Construction
    • Infrastructure
    • Manufacturing
    • Information Technology
    • Financial Services
  •  Caters to the needs in
    • Infrasturucture
    • Power
    • Hydrocarbon
    • Process Industries
    • Defense
  • Has customers in over 30 countries
  • It is a 'promoter less' company which is professionally managed
  • LIC holds 16.46% stake
  • Mutual funds hold 16.1% stake
  • Current order book (as on March 2015) is Rs.2,39,000 Crores which is 2.6 times the turnover)
  • Infrastructure accounts for 71% of the outstanding orderbook
  • L&T Infotech filed for IPO with SEBI in Sept 2015.
  • Has an Uninterrupted dividend payment record since 1946!
  • Dividend per share has increased on consitstent basis over last 10 years.
  • Bonus has been declared thrice over last 10 years : in CY 2006 (1:1), in CY 2008(1:1) and in Cy 2013(1:2)
Had you invested Rs.1,00,000 in 2005, you would have got 102 shares. 
Today, after 10 years, you would have 612 shares valued at Rs.835992. 
That's 23.66% Growth. 
This is apart from the yearly dividends. 

What else does an investor (atleast entry level investor) expect from his investment!

It is for this reason shares like L&T are often referred to "BLUECHIP" shares. These are safe stocks to ride the stock market wave. 

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