Blue-chip stocks vs SME IPOs: Which is better for whom— Explained

Blue-chip stocks vs SME IPOs: Amid the growing excitement surrounding Small and Medium Enterprises (SME) Initial Public Offerings (IPOs), investors are increasingly drawn to the high-growth potential these offerings present. SME IPOs have recently captured significant attention due to their substantial listing day gains. When evaluating investment options for long-term growth, choosing between blue-chip stocks and SME IPOs is critical.

What are blue-chip stocks?

Blue-chip stocks are shares of large-cap companies renowned for their stability and reliability. These established companies have a strong track record of steady growth, making them a preferred choice for long-term investors who do not have the stomach for risk.

In contrast, SME IPOs can be a good option for those willing to accept higher risks in exchange for greater returns.

Market experts say that blue-chip stocks have the potential to deliver alpha returns—returns that exceed the average market performance, whereas investing in SME IPOs during a bull market can be advantageous, especially if you are making a significant investment. In a bullish market, high-quality SME IPOs can offer substantial short-term gains.

Blue-chip stocks vs SME IPOs: Where to invest for the long-term?

Ultimately, the choice between blue-chip stocks and SME IPOs hinges on an investor's risk tolerance and financial objectives. To clarify which option might be better suited for different types of investors, Livemint consulted market experts.

"Blue-chip and SME stocks offer different opportunities for long-term investing. Blue-chip stocks, or large-cap companies, are ideal for conservative investors seeking stability and consistent performance. They are less volatile and provide a reliable path to capital appreciation, even though they might not deliver the rapid growth seen with SME stocks. On the other hand, with their significant growth potential, SMEs carry higher risks due to their susceptibility to market fluctuations and operational challenges. Fundamentally strong SME stocks can be highly rewarding for those willing to accept these risks. However, conservative investors may prefer the stability and resilience of blue-chip stocks," said Dr Ravi Singh, SVP - Retail Research at Religare Broking.

"The stability of large-cap companies, as evidenced by the success of investors like Warren Buffett, highlights their value for long-term capital growth. Blue-chip stocks, though slower-growing compared to SME IPOs, offer steady gains and a strong foundation for a resilient investment portfolio. While SME IPOs can provide exciting opportunities, blue-chip stocks remain essential for investors looking to weather economic downturns and achieve reliable long-term returns," added Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited.

Top 5 SME IPOs of 2024 with notable listing day gains

Several companies have achieved exceptional listing day gains in the SME IPO market, showcasing strong investor enthusiasm. Winsol Engineers Limited topped the list with a remarkable 411.00% gain on its debut, which took place on May 14, 2024. Close behind, Kay Cee Energy & Infra Limited saw a notable listing day gain of 343.33% when it was listed on January 5, 2024.

Medicamen Organics Limited followed with a significant gain of 325.59% on June 28, 2024. GP Eco Solutions India Limited also performed exceptionally well, with a listing day gain of 318.88% on June 24, 2024. Rounding out the top five, Maxposure Limited achieved a 317.42% gain on its first trading day, January 23, 2024. These substantial gains reflect the strong market reception and investor interest in these SME IPOs.

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Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.