Diversify and grow: Indian businesses expand beyond home turf, face risks

While horizontal expansion fuels growth and domestic dominance, these capital-intensive ventures often lack immediate returns, risking resource dilution and a loss of global strategic focus

For Indian conglomerates and business groups, horizontal diversification in new sectors and markets has become a hot recipe to keep their growth engines humming. In the last decade, top business groups such as Tata, Mukesh Ambani-led Reliance, Adani, Aditya Birla, JSW, Murugappa and others have diversified into new industries and markets to get bigger and strengthen their dominance. 

The Tata group, the country’s largest conglomerate that traditionally focussed on engineering, manufacturing, information technology (IT) services and hospitality, has in recent years diversified into civil aviation (re-entry), ecommerce, health care, electronics manufacturing, fashion and FMCG, among others. Ambani’s Reliance Industries (RIL) is now a major player in telecom (re-entry), ecommerce, retail, food, FMCG and personal care, media, and broadcasting, and sports and is expanding its presence in financial services and hospitality. RIL’s original businesses of oil & gas and petrochemicals now account for just about half of its consolidated revenues and profits. 

The Gautam Adani family-controlled Adani group has been equally prolific in diversifications. The group, which made its initial fortune through international trading of industrial and agricultural products, is now a major player in coal mining and trading, ports, airports, power generation, transmission & distribution, cement, natural gas distribution, copper smelting, real estate, media & broadcasting, defence manufacturing, and healthcare. 

 

The Aditya Birla group, which made its fortune in aluminium, copper, cement, fertilisers and carbon black, has forayed into paints, construction chemicals, real estate, retail and financial services. The group also has a presence in telecom with a minority equity stake in Vodafone Idea – now a three-way joint venture between itself, Vodafone Plc and the Indian government.

Likewise, the Sajjan Jindal-led JSW group has diversified into paints, cement, and automobiles, among others, while accelerating expansion into the power and ports sectors. The group made its fortune in iron and steel production. Its flagship, JSW Steel, is among the biggest steelmakers in the domestic market and also the most valuable one in the sector. Now, the group is leveraging its financial success to build a portfolio of businesses in other sectors. 

Even standalone firms with sector specialisation, such as Asian Paints and Larsen & Toubro, now have a presence in diverse sectors to sustain their growth and create value for themselves and shareholders. Asian Paints, which is synonymous with paints and coatings, now sells bathroom fittings, modular kitchens, home lighting and adhesives. 

Likewise, Larsen & Toubro, the country’s largest construction and engineering firm, now has a major presence in IT, financial services and semiconductors. 

Chennai-based Murugappa group has diversified into the power equipment and consumer appliances sector by acquiring CG Power and Industrial Solutions in August 2020. 

Some experts attribute the diversification strategy to a general slowdown in India’s growth. “From the mid-1990s to around 2012-13 most sectors and industries were growing and companies were scaling up their operations. The growth momentum is now gone [slowed down], making it tough for the companies to grow their revenues and profits on a sustained basis,” said Dhananjay Sinha, co-head, research and equity strategy, Systematix Institutional Equity. 

The slowdown shows in the historical numbers of the BS1000 — an annual listing of India’s 1,000 biggest listed companies, excluding banking, financial services and insurance (BFSI), ranked by their annual consolidated revenues. 

BS1000 companies’ combined revenues have grown in single digits or declined year-on-year in six out of the past 11 years beginning FY15. Combined revenues grew in single digits on only two occasions — FY03 and FY14. As a result, annual revenue growth more than halved to 8.7 per cent on average from FY15 to FY25, from 18.6 per cent during the FY03-FY14 period. 

BS1000 companies’ revenue growth in FY25 improved over the previous year but remained in single digits. Combined revenue was up 7.2 per cent in FY25, an improvement from 3.7 per cent growth in FY24. Corporate results for the first three quarters of FY26 hint at another year of single-digit revenue growth in FY26. The combined revenue of listed companies, excluding BFSI, was up 8.4 per cent in the first nine months of FY26. 

The corporate growth deceleration is, in turn, attributed to a slowdown in India’s gross domestic product (GDP) at current prices. 

“India’s nominal GDP, which used to grow by 15-16 per cent annually, is now struggling to grow by 9-10 per cent per annum, even though the real GDP growth (GDP at constant prices) remains robust,” said G Chokkalingam, founder and chief executive officer (CEO) of Equinomics Research. 

“As corporate revenues grow in tandem with nominal GDP, the slowdown has made it tough for companies, especially the top ones and industry leaders, to grow in double digits,” he said. 

India's nominal GDP grew by 9.7 per cent in FY25, down from 11 per cent in FY24 and the slowest pace in four years. With this, India’s nominal GDP grew by an average of 10.3 per cent between FY15 and FY25, compared to 14.7 per cent during the FY03–FY14 period. This was reflected in the revenue growth of BS1000 companies. Their combined revenues grew by an average of 8.7 per cent between FY15 and FY25, a sharp deceleration from the 18.6 per cent average annualised growth recorded during the FY03–FY14 period. (See charts). 

 

 

This slowdown was led by the industrial sector, including manufacturing. The impact has been particularly pronounced for major business groups and conglomerates, given their commanding position in several industrial segments. “There has been a steady decline in industry’s share in India’s GDP, as it continues to grow slower than the overall economy. Most of the incremental growth in India’s GDP in the last decade came from the services sector such as bank and finance and IT services,” said Sinha. 

According to data from the Reserve Bank of India (RBI), industry’s share in India’s GDP declined to a 50-year low of 26.8 per cent in FY25. Similarly, manufacturing accounted for just 14.1 per cent of GDP in FY25 — a level last seen in early 1960s (Industry includes mining, manufacturing, construction and utilities such as power generation, gas and water supply.) 

By comparison, the services sector accounted for 65 per cent of India’s GDP in FY25, up from 60.3 per cent in FY15. This has made diversification in newer sectors essential for business groups and large companies. 

Slowdown strategy 

According to Sinha, the growth slowdown also reduces the need to make additional investments in existing businesses and frees up cash flows for new sectors. Other experts attribute diversification to business groups’ ability to overcome market and institutional inefficiencies in an emerging market like India. 

“Unrelated diversified business groups act as an internal market, internalising functions that the external market cannot provide efficiently. By moving into unrelated sectors, they can effectively redeploy capital, talent and brand reputation across their portfolio, reducing transaction costs and overcoming market failures,” said Saptarshi Purkayastha, who teaches strategic management at the Indian Institute of Management, Calcutta, in an email interview. 

According to Purkayastha, by balancing mature, cash-generating businesses with high-growth sunrise industries, business groups create a self-sustaining ecosystem that is less vulnerable to sector-specific downturns or external financing constraints. 

Diversification also helps groups and companies reduce their dependence on a few businesses, providing a cushion during sharp and prolonged downturns in specific sectors. In the past decades, India has witnessed prolonged downturns in sectors like oil & gas, metals and mining, textiles. 

The balance sheets of India’s top business groups suggest that the biggest spurt in diversification came in around 2019 and it gathered momentum during the pandemic. 

For example, Tata Sons’ equity investment in unlisted subsidiaries jumped nearly 50 per cent in FY19, followed by 21 per cent the next year, and has remained elevated since FY22 as it continues to pump fresh capital into the group's new ventures in electronics manufacturing, aviation and ecommerce, among others. 

In six years, Tata Sons’ equity investments in unlisted subsidiaries have increased at a compound annual growth rate (CAGR) of 26.3 per cent — from a cumulative investment of ₹25,214 crore at the end of FY19 to ₹1.02 trillion at the end of FY25. By comparison, Tata Sons’ total equity investments in unlisted ventures had grown at a CAGR of just around 7.2 per cent between FY10 and FY19. 

Tata Sons’ single biggest investment in FY25 was in Tata Digital, the group’s ecommerce arm, surpassing Tata Motors, which has historically received its largest investment. Tata Sons has made cumulative equity investment worth ₹22,903 crore in Tata Digital, compared to its cumulative equity investment of ₹22,657 crore in Tata Motors. Tata Digital first appeared on Tata Sons’ balance sheet in FY21 with a total equity investment of ₹600 crore. 

Air India got the group’s third-biggest equity investment, worth ₹22,618 crore at the end of FY25. Other major investments by Tata Sons include those in Tata Electronics (₹6,961 crore) and Tata Realty & Infrastructure ((₹5,370 crore). 

Spreading out 

In FY16, IT services and consultancy — read Tata Consultancy Services (TCS) — accounted for 71 per cent of Tata Sons’ consolidated revenues. The share fell to 43 per cent in FY25 and nearly a quarter of consolidated revenues are now contributed by airlines and electronic manufacturing, which were absent in FY16. 

Similarly, RIL’s equity investments in unlisted ventures have grown rapidly. Its cumulative investment in unlisted entities — such as telecom, retail, and real estate — alongside listed media & broadcasting (Network 18), rose from ₹61,962 crore at the end of FY19 to ₹161,211 crore by the end of FY25. Jio Platforms received the single biggest equity investment by RIL — worth ₹54,900 crore at the end of FY25, followed by unlisted Studio 18 Media (₹23,216 crore) and Reliance Retail Ventures (₹19,817 crore). RIL's other big investments include those in Reliance 4IP Realty Development (₹17,614 crore) and Star India (₹11,500 crore). These diversifications have transformed RIL from an oil, gas, and petrochemicals major into a multisector conglomerate (or services company). In FY17, oil refining and petrochemicals (O2C) and oil & gas production accounted for 91 per cent of RIL’s consolidated revenue. By FY25, this combined share had declined to 54 per cent. Meanwhile, the retail division’s revenue share jumped to 28 per cent from 6 per cent in FY16, with digital services — including telecom — now contributing 13 per cent of consolidated revenues. 

The expanding sectoral footprint of major business groups has led to a proliferation of their companies in the BS1000 list. For instance, the FY25 edition features 33 companies from five prominent family-owned groups — RIL, Adani, Aditya Birla, Murugappa, and JSW—up from 18 firms in FY17. These numbers are expected to rise further as several large and currently unlisted entities from these groups are likely to debut on the bourses in the future. (See charts) 

 

The Adani group leads the list with 11 companies appearing in the BS1000’s FY25 edition, up from four in FY17. In contrast, the number of Tata companies in the list has shrunk from 20 to 16 over the same period, as the listed subsidiaries of Tata Steel and Tata Consumer merged with their parent entities, and most of Tata Sons’ new ventures remain unlisted. 

Hefty investments in new ventures have allowed business groups to increase their economic dominance through faster growth in revenues and assets. “In the past, every business group was identified with a sector or industry. In recent years, most large business groups are trying to become a mini economy and quite a few of them seem to have succeeded in creating one,” said Chokkalingam. 

Waiting for returns 

Numbers, however, suggest that many of these ventures have yet to deliver significant financial returns. Most groups remain dependent on a handful of legacy businesses to generate the bulk of their profits and free cash flow, creating a system of cross-subsidisation where established units subsidise new ventures. 

Tata Sons, for example, gets most of its revenues and profits from TCS. It would have reported a net loss of around ₹20,000 crore in FY25 if TCS’ numbers were excluded from its consolidated finances. In all, Tata Sons’ non-TCS businesses have cumulatively reported a net loss of around ₹1.5 trillion in the past 10 years. Tata Sons reported a consolidated net profit of around ₹28,900 crore in FY25, compared to TCS’ consolidated net profit of around ₹48,500 crore. 

Similarly, most of RIL’ free cash flow (cash profit net of capital expenditure) is generated by its O2C and oil and gas divisions. In FY25, for instance, RIL’s consolidated profit before interest and taxes (PBIT) would have been a negative ₹2,551 crore if one were to adjust (provide) for the annual capital expenditure, according to the Capitaline database. The company reported consolidated capex of about ₹1.25 trillion in FY25, against a consolidated PBIT of around ₹1.22 trillion. 

The O2C and oil and gas businesses together accounted for 51.5 per cent of consolidated PBIT last financial year, but absorbed only 22.2 per cent of the overall capex. Nearly 78 per cent of the capex went towards retail, digital services and other segments compared to their 48.5 per cent contribution to RIL’s overall PBIT. 

Adani Ports and Adani Power together generated around 55 per cent of the group’s combined cash profit in FY25, but absorbed only 32 per cent of the overall capex. Nearly half of the group’s capex in FY25 was absorbed by Adani Enterprises and Adani Green Energy, even though they contributed around 28 per cent to the overall cash profits last financial year. 

 

Performance question 

Equity market evidence suggests that diversification does not mean outperformance. Over the last decade, the combined market capitalisation of companies from diversified business groups — including Tata, RIL, Adani, Aditya Birla, JSW and Murugappa — has largely tracked the benchmark BSE Sensex. While there were spikes in their combined valuation during 2020 and early 2022, driven primarily by RIL and Adani group companies, these were followed by periods of underperformance in the 2023 and 2025 calendar years. Furthermore, the market capitalisation of these diversified groups exhibits higher volatility (standard deviation) than the BSE Sensex, resulting in lower risk-adjusted returns for investors. 

“A diversification-led growth strategy risks, what management scholars call a ‘conglomerate discount’. As a group enters more unrelated sectors, the complexity of managing these units increases exponentially,” said Purkayastha. 

Diversification into unrelated sectors, coupled with a slowdown in older but profitable business and the practice of cross-subsidisation, creates a risk that business groups will spread their capital and managerial resources too thinly. This often comes at the expense of deep investment required to create true global champions. The primary risk of conglomeration is a loss of strategic focus, which can lead to operational mediocrity and capital dilution,” said Purkayastha. 

However, he added that the global competitive advantage of these groups was not about being the best in a single product but about being so at market entry and resource orchestration. 

Other analysts say that often unrelated diversification is an arbitrage play, given large business groups’ ability to mobilise capital and regulatory approvals. “Most business groups are not trying to become the world’s best but to dominate the domestic economy. Many groups have been quite successful in this regard, which vindicates their growth strategy,” said Chokkalingam. 

Analysts also suggest that diversification by large groups discourages the entry of smaller independent companies, making it easier for the former to dominate a sector. “This reduces competition in markets where large business groups operate and we could see it playout in sectors such as telecom, aviation, industrial metals and cement among others,” said Sinha. 

Viral Acharya, a former deputy governor of the RBI, argued in a 2023 Brookings paper titled “India at 75: Replete with Contradictions, Brimming with Opportunities, Saddled with Challenges” that the expanding footprint of the big five business groups and their increasing market dominance risks making India’s future growth dependent on a handful of “national champions”. 

“At present, the rising industrial concentration in India presents more of a risk or a dark side through various distortions than an opportunity or the bright side that could lead to the creation of globally competitive international giants,” Acharya had noted. 

A string of subscale and globally uncompetitive firms in multiple sectors risks creating a downward spiral of higher prices of goods and services for consumers, shrinking market sizes, and lower investments. This, in turn, could lead to even greater diversification and, ultimately, diminished economic growth. 

Conversely, if these diversifications expand markets, increase consumer choice, and improve operational efficiencies, the outcome would be positive for both consumers and the country’s economy. The paint, retail, and real estate sectors serve as notable examples of this potential.