TYPES OF EQUITY

Essentially seven types of equity shares are important from the investor’s point of view:

1.   Blue chips

2.   Growth Stocks

3.   Defensive Stocks

4.   Cyclical Stocks

5.   Turnaround Stocks

6.   PSU Stocks

7.   MNC Stocks

The above classification has to be understood in a broad sense for there is scope for overlap, as the last two categories are based on ownership. It is possible to classify the PSU stocks and MNC stocks into one of the first five categories.

BLUE CHIP STOCKS                     

Shares of established companies whose asset, sales , turnover and profits continue to grow rapidly are fittingly called Blue Chips. Ex: HDFC Bank, TITAN etc

GROWTH STOCKS:

Shares of relatively new companies which are performing in outstanding manner are known as growth shocks.

Growth stocks eventually graduate into established blue chips. Ex is Infosys and Dr Reddy’s LAB

DEFENSIVE STOCKS

Typically these are shares of traditional companies engaged in stable and mature industries. Their earnings do not fluctuate very widely from year to year. Market prices of defensive shares tend to fluctuate within a narrow range.

CYCLICAL STOCKS:

These are shares of companies engaged in business which are susceptible to fluctuations  caused by economic and trade cycles. Typically do very well in Boom and hit the bottom in Bust phase.

Ex : Real Estate industry, Automobile industry , Sugar industry etc.

TURNAROUND STOCKS:

A turnaround share is one whose market price is currently lower than its intrinsic value because the company has recently gone through a bad patch. One of the example is TATA Motors.