TOKYO/MUMBAI: JFE Holdings Inc (5411.T), the world's No.5 steelmaker, will spend about $1 billion for a 14.9 percent stake in India's JSW Steel Ltd, just shy of a mandatory takeover trigger level, in its bid to gain a foothold in the fast-growing Indian market.

The stake purchase, JFE's first major capital investment in a foreign steelmaker, will allow it to tap the rapidly growing market for auto-use steel in India. For JSW, India's No. 3 steelmaker, the deal will provide capital needed to expand production.

Both JFE and its bigger rival Nippon Steel Corp (5401.T) are investing in Indian steel firms with an eye to country's burgeoning automotive market. Nippon Steel plans to form an automotive sheet steel joint venture with India's top steelmaker Tata Steel Ltd (TISC.BO) by the end of the 2012 financial year.

Car sales in India are set to rise 12-13 percent in 2010/11 on the back of an expanding economy, prompting global carmakers to boost investment in the country.

"Domestic demand is weak and we have no choice but to shift our focus to expanding overseas," JFE Vice President Shigeru Ogura told a news conference in Tokyo.

"We need to tap demand in broader Asia including the Middle East. Within that, India is an appropriate place to make an investment, and we view JSW as an attractive company with good growth strategy. "

JFE Steel, the core unit of JFE Holdings, said that it would spend about 48 billion Indian rupees ($1.02 billion) on a preferential allotment of shares in JSW, with the aim of acquiring a 14.99 percent stake in terms of voting rights.

JFE also announced earnings on Tuesday, reporting a return to profit in the April-June quarter but giving only a cautious full-year outlook below market expectations citing weak Asian prices. Its shares fell 2.6 percent to 2,672 yen.