Diageo in collaboration talks with United Spirits

"Diageo can confirm that it is reviewing a possible collaboration with United Spirits," said Cecilia Coonan, spokeswoman for the company, which makes Johnnie Walker whisky, Guinness stout and Smirnoff vodka.

Analysts said such a deal could prove extremely profitable for Diageo by giving the London-based drinks company access to India's fast-growing, but highly protected, national alcohol market.

"The Indian market has immense potential with its rapidly growing aspirational middle class, who put a great deal of weight on Western brands," said Sam Hart, analyst at Charles Stanley Stockbrokers.

Foreign alcohol makers' access to India is currently limited by high import tariffs.

India's basic import duties on foreign wine and spirits are 150 percent, with various government surcharges taking the charge up to 550 percent, depending on the Indian state.

These protections are so great that both the European Union and the United States have brought cases to the World Trade Organization, accusing India of breaking international trade laws.

India's Economic Times earlier reported that Diageo may buy a 14.99 percent stake in the Indian drink maker, although the newspaper did not identify a source for the claim.

Diageo shares fell by less than 1 percent to close at 900.5 pence ($13.16) on the London Stock Exchange.