Investors have seen the benefits of not supporting rampant diversification
Diversified conglomerates were market leaders in the early years of liberalisation. GE was the toast of global markets and every Indian corporation thought it could emulate GE. Indian corporations diversified at will as Licence Raj was being dismantled and tariffs were still high enough to offer protection. Indian companies believed diversified streams of businesses could support each other when fortunes fluctuated. And investors played along. We even loved companies that had completely unconnected businesses within. Most diversification blunders have a common starting point—easy availability of capital and favourable cronyist governments. The availability of easy capital from GDRs and the removal of licensing saw Indian boards go berserk, constantly seeking to enter newer businesses.