Emerging markets like India have poorly functioning institutions, leading to severe agency and information problems. Business groups in these markets have the potential both to offer benefits to member firms, and to destroy value. We analyze the performance of affiliates of diversified Indian business groups relative to unaffiliated firms. We find that accounting and stock market measures of firm performance initially decline with group diversification and subsequently increase once group diversification exceeds a certain level. Unlike U.S. conglomerates' lines of business, and similar to the affiliates of U.S. LBO associations, affiliates of the most diversified business groups outperform unaffiliated firms.