India’s conglomerate boom: How Adani and Reliance are reshaping the market

The growth was led by Adani Group, which added eight new listed companies during this period, the most amongst India’s conglomerates. The additions were largely driven by the group’s foray into the cement sector, where it acquired five listed companies in quick succession.

Reliance Industries added three new listed companies, with the acquisition of Just Dial and Sterling and Wilson Renewable Energy Ltd, and the demerger of Jio Financial Services Ltd.

The Aditya Birla Group and the Tata Group added two new listed companies each to their portfolio during this period, while the Bajaj Group and Mahindra added one each.

The JSW Group was another business house to have rapidly increased its tally of listed companies during this period.

The conglomerate, which made its fortunes in steel, listed JSW Infrastructure and JSW Cement in the last couple of years and acquired listed paints maker Akzo Nobel India Ltd. It also plans to take public its construction material e-commerce arm JSW One and its electric car company JSW MG Motor India in the next four years.

“We believe our core strength is manufacturing. We believe that we can build anything in India at a lower cost, with a better quality, than anybody else in the country,” Parth Jindal, the managing director of JSW Cement, said during the company’s initial public offering (IPO) last month. He is the son of JSW Group chairperson Sajjan Jindal.

March of the giants

The surge in the fortunes of Indian business houses stands in contrast to the West, where conglomerates have been largely written off as a relic of the past. Notable names like General Electric, Johnson and Johnson, Honeywell and United Technologies have in recent years split their businesses into multiple independent companies to better manage their diverse interests.

“In simple terms, the business landscape in India over the last decade can be likened to combining a country like Taiwan and a continent like Africa into one economy. You’ll see that Taiwan is eating up Africa. In a similar way, conglomerates have only become stronger and bigger in the last ten years or so,” said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers, a Mumbai-based portfolio management services provider.

He attributed this growth of conglomerates to three factors. First, a nation-wide uniform tax structure in the form of goods and services tax (GST), the development of the India Stack led by Aadhaar and UPI, and the creation of high-quality infrastructure. “All this has helped large companies or conglomerates develop and scale up across a pan-India business while smaller businesses have struggled,” he said.

Another key reason for the dominance of conglomerates in India is that the country lacked institutional mechanisms that would facilitate the growth of entrepreneurial ventures, said Saptarshi Purkayastha, professor for strategic management at the Indian Institute of Management-Calcutta.

“Similarly, availability of long-term capital to start manufacturing plans that would have scale of economies was scarce and whatever was available was controlled by the government and its licence raj rules,” Purkayastha said. “Hence, conglomerates have the advantage of reallocating capital within the group, giving their businesses expansion options that non-conglomerate firms, especially MSMEs (micro, small, and medium enterprises), struggle to secure from external markets.”

Conglomerates also tend to wield influence on policy making, giving them an advantage over smaller competitors, he added. “This is sometimes criticized for crowding out MSMEs, but it also means these entities can exert significant positive impacts, such as job creation and infrastructure development.”

(Mayur Bhalerao in Mumbai contributed to this story).