This paper attempts to understand the relationship between firm performance and diversification for the sample firms in the chemical sector in India. Using concentric index of diversification, this paper relates firm performance and diversification for the chemical sector. The results of this study indicate that, higher diversification leads to poorer performance as firms try to diversify into areas beyond their current scope. This paper further concludes that diversification is not a very good strategy to increase profits in the context of Indian chemical industries. Though diversification to some extent may give positive results but higher diversification leads to poor performance. The contribution of this work lies in identifying diversification for the chemical sector in India and compare with firm characteristics in general, and with the firm performance in particular. © 2017 Inderscience Enterprises Ltd.