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Jack of all trades

Why diversification has been a painful exercise for large Indian conglomerates

Circa 2006. On a cold December morning, an ebullient Sunil Mittal announces the national launch of Bharti AXA Life Insurance. “Our in-depth understanding of the Indian market clubbed with the experience of setting up a robust network will be leveraged to build and grow the joint venture,” he says. The fledgling insurance business has “aggressive plans” for India and given the telecom giant’s reach, Bharti AXA’s focus on “mass market growth” seems on target.

Fast forward to June 2011. Bharti Enterprises catches the market off-guard with its surprise announcement — the group plans to exit the financial services joint venture in both life and general insurance, and will sell its 74% holding in both to Reliance Industries. Less than five years after its grand entry into the business, the group now says “the financial services ventures do not fit our long-term plans” and that it intends to focus on businesses where it is making a deeper impact in India and overseas (read: telecom). It isn’t a bad decision: for FY11, Bharti AXA accounted for a measly 3% of the gross premium underwritten by private players in the general insurance space and an even lower 0.92% in the life segment. The “aggressive plans” had gone cold and no new branches were opened for over a year.

As it happened, a couple of months later the deal with Reliance fell through and the struggling business is still a millstone around Bharti’s neck. Another financial foray, into mutual funds with AXA as partner, has been equally disappointing. For the October-December 2011 quarter, the mutual funds business had average assets under management (AUM) of just ₹161 crore compared to a total AUM across the industry of nearly ₹6.82 lakh crore. Not surprisingly, then, Bharti was keen to exit this line of business as well and in December 2011, sold its entire 25% stake in Bharti AXA Mutual Fund to Bank of India.

But this isn’t about Bharti alone. In the past decade, several Indian conglomerates expanded their portfolios substantially, reaching out to newer and seemingly high-potential businesses. Not all have succeeded and, indeed, many have failed ignominiously. After the initial decade of liberalisation, and the time spent on cleaning up balance sheets and consolidating core businesses, the focus had turned to growth. New avenues were emerging and

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