* Deal could be valued at 8 pct of JM fund assets - source
* JM Financial Asset Management CEO denies sell-off report
* Reliance shares up 0.7 pct; JM Financial soars 20 pct
* Ambani brothers ended non-compete pact this month (Adds analyst comment, details, background)
By Pratish Narayanan
MUMBAI, May 31 (Reuters) - Indian billionaire Mukesh Ambani is in talks to buy a majority stake in JM Financial Asset Management, which oversees $1.8 billion in assets, a source with direct knowledge of the situation said on Monday.
A deal with JM Financial would give Mukesh a slice of India's attractive fund management sector, which has drawn investors looking to capitalise on India's rapidly growing population and a savings rate of more than 30 percent.
Mukesh and his estranged younger brother Anil ended a non-compete pact this month, freeing Mukesh to invest wherever he sees opportunity, with financial services, power and infrastructure on his target list. [ID:nSGE64P02E]
Talks with JM Financial are at an early stage and terms of a deal have not been finalised, said the source, who could not be identified as he was not authorised to speak to the media.
The source said the deal value could be 8 percent of the assets under management at the unit of financial services firm JM Financial (JMSH.BO), backing a report in the Mint newspaper. That would indicate an investment of around $144 million.
JM Financial Asset Management, one of India's oldest private sector mutual fund houses, having opened in 1994, denied the sell-off plans.
"There is no truth in this. JM Financial mutual fund forms an important part in the JM Financial Group portfolio and we remain focused and committed towards growing this business," JM Financial Asset Management CEO Bhanu Katoch told Reuters.
According to its website, the mutual fund manager has a 10,000-strong distributor base covering 52 locations in India. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
StreetSight data on JM Financial: r.reuters.com/dup37k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Energy major Reliance Industries (RELI.BO), the flagship of Mukesh Ambani, the world's fourth-richest man with an estimated net worth of $29 billion, declined to comment.
At 0630 GMT, Reliance shares were up 0.7 percent, and JM Financial was up 20 percent at a 5-week high of 38.15 rupees. Trading in JM Financial stock was around 14 times the normal daily volume.
"This makes sense as Reliance has a lot of cash and financial services is one of the most attractive sectors in India right now," said Gajendra Nagpal, chief executive of Unicon Financial Intermediaries.
"From a long-term perspective, Reliance has a large retail network and it may be looking to capitalise on that to reach a lot of people."
India's fund market will be managing $520 billion in assets by 2015, up from $135 billion last September, according to forecasts by the Boston Consulting Group.
U.S. money manager T. Rowe Price Group Inc's (TROW.O) agreement to buy a stake in India's UTI Mutual Fund, and the acquisition of DBS Cholamandalam Asset Management by the financial services unit of engineering firm Larsen & Toubro (LART.BO) are among recent high-profile deals in the sector.
Reliance Industries, India's biggest listed company, is forecast by Goldman Sachs to generate free cash flow of $18 billion between this year and the financial year that ends in March 2014, giving it plenty of firepower for investment.
The company, with interests in oil and gas exploration, petrochemicals and textiles, has sought out acquisitions as it looks to expand its businesses and gain an overseas foothold.
Reliance said in April it would pay $1.7 billion to form a joint venture with Atlas Energy ATLS.O at one of the most promising natural gas deposit regions in the United States. It also bought a stake in Indian freight services firm Deccan 360 to help boost its retail operations.
Mukesh Ambani, a chemical engineer by training who dropped out of an MBA programme at Stanford University to join Reliance in 1981, was previously not able to move into financial services businesses such as fund management or insurance as Anil's Reliance Capital (RLCP.BO) already operated in the sector.
But, after a bitter 5-year feud that split India's richest family, the brothers this month struck a surprise truce by ending the non-compete agreement that had been a source of acrimony between them. ($1=46.3 rupees) (Additional reporting by Nishant Kumar; Editing by Ranjit Gangadharan and Ian Geoghegan)
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