New Delhi, March 26 -- In his book One Up on Wall Street, legendary fund manager Peter Lynch uses the term 'diworsification' to describe unbridled and often unrelated diversification by companies or investors into areas or assets they don't fully understand. The result, Lynch says, is mostly substantial capital misallocation and wealth destruction.

A close look at the recent travails of Gensol Engineering, which faced a rating downgrade amid charges of falsifying its financial statements, and the collateral damage to Blu-Smart Mobility, a company with whom it has unexplained ties, shows the consequences of such diworsification.

The Blu-Smart business is smart and opportunistic. Set up in 2019 by Anmol Singh Jaggi, Punit Goyal and Puneet...