The company has recently set up a merger and acquisition team to scout for start-ups working on new and interesting technology that could add value to its business.
Sources said Micromax is in talks to raise as much as USD one billion from global investors, including Japan's SoftBank.
When contacted, a Micromax spokesperson said: "As a company policy, we do not comment on any market speculation."
In 2010, Micromax had filed for a public listing but later shelved the plans citing poor market conditions.
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Sources said funds would be utilised to boost development of new products and technology as the company competes head-on with traditional rivals like Samsung and newer entrants in the market like Xiaomi.
Analysts said investing in start-ups would help Micromax differentiate itself in the crowded smartphone market, especially in case of Android devices.
"International rivals like Samsung and Xiaomi as well as local competitors are investing heavily in R&D. Micromax will have to strengthen its play, in both local manufacturing and R&D, if it wants to stay ahead in the game," an analyst said.
Micromax's investors include TA Associates, Sequoia Capital, Sandstone Capital and Madison India Capital.
According to research firm Canalys, Micromax overtook Samsung (20 per cent) as India's largest handset vendor with 22 per cent of shipments in the October-December 2014 quarter.
The Korean firm has challenged the report.
Affordable handsets from homegrown firms is credited to have helped India become one of the fastest growing handset markets globally.
For smartphones too, affordably priced devices, especially those under Rs 10,000 are driving the boom in the market, making it the world's third biggest market.