Consistents & Volatiles, The Two Dimensions Of Wealth Creation: Motilal Oswal's Thematic View

Motilal Oswal Report

Wealth creation is the process by which a company enhances the market of the capital entrusted to it by its shareholders. It is a basic measure of success for any commercial venture. For listed companies, we define wealth created as the difference in market capitalisation over a period of last five years, duly adjusted for corporate events such as fresh equity issuance, mergers, demergers, share buybacks, etc.

The financial sector, coming out of Covid despair, is likely to dominate wealth creation in the foreseeable future.

There are only two types of companies – consistents and volatiles.

What are Consistents?

The sole basis of our definitions is the growth trend in profit after tax of companies and sectors. For a company to be deemed a consistent, it should meet the following three criteria –

1. Over a 15-year period, its annual PAT should not fall by over 10% more than thrice (twice if the period is 10 years);

2. No fall in PAT should be greater than 50%; and

3. The terminal year PAT should not be lower than the initial year PAT.

What are Volatiles?

All companies that are not Consistents are Volatiles.

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