Anil Ambani
Anil AmbaniReuters

Reliance Capital surged 1.52 percent to ₹633.30 on BSE on Friday, after reports emerged stating Japan's Sumitomo Mitsui is buying a 10 percent stake in the Anil Ambani-owned company.

The deal worth $400 million (₹ 2,400 crore), if accomplished, will be the second largest investment by a Japanese company in the Reliance group and the fourth largest in the Indian financial services sector.

"Talks between the two companies are at an advanced stage and a deal could be signed by September for roughly 10% minority stake," Economic Times quoted a source with direct knowledge of the talks.

Japanese firms have made huge investments in India in recent years. In fact, Japan's second largest bank Sumitomo Mitsui Banking Corporation (SMBC) bought 4.5 percent stake in Kotak Mahindra Bank for ₹1,366 crore in 2010.

SMBC and Brookfield, a global alternative asset manager, along with Kotak committed over ₹275 crore in their first close in 2013.

Reliance Capital had a net worth of ₹12,483 crore and total assets of ₹45,528 crore as on 31 March.

Sumitomo Mitsui has invested in retail, banking, commercial, financial and fiduciary business services. It is investing in India, a developing market, so the the returns will be higher for Japanese banks, says the report.

The bonhomie with Japanese firms is an ongoing venture for Reliance Capital as it was about to make SMBC its partner last year in a banking subsidiary but regulator Reserve Bank of India did not give the licence.

Instead of the proposed banking subsidiary, Sumitomo is now investing in the parent company Reliance Capital as the proposal in 2013 did not work out, reports ET.

Otherwise, Reliance Capital is in partnership with Nippon Life Insurance since 2011, when it sold 26 percent stake for ₹3,062 crore, valuing the business then at ₹11,500 crore.

"An investment by a Japanese financial services firm enhances the credibility of Indian companies," the report quoted Abizer Diwanji, head of financial services at Ernst & Young (EY).