Daiichi Sankyo's board agreed to sell its stake in Sun Pharmaceutical Industries on the Indian stock exchange, but collaborative efforts would continue between the two companies, Daiichi said in a statement.
"After the sale, Daiichi Sankyo will not be a major shareholder of Sun Pharma," Monday's statement said.
Daiichi Sankyo received about 8.9 percent after Sun Pharma bought Daiichi's entire stake in Indian generics rival Ranbaxy Laboratories last April for $3.2 billion.
The sale ended years of efforts by Daiichi to turn around the ailing drugmaker, which is tussling with US regulators over safety lapses at its manufacturing plants in India.
Sun Pharma was trading down 9.25 percent at 947.50 rupees on the Bombay Stock Exchange, after falling to as low as 933.10 rupees in morning trade.
"It was known that Daiichi did not want to stay put and would divest its stake soon. But the speed of the divestment was slightly unexpected. However, this gives Sun control in the combined entity," said Sarabjit Kaur Nangra, vice president of research at Angel Broking.
Mumbai-based Sun faces the tough task of bringing four of Ranbaxy's manufacturing plants into compliance after they were banned from exporting to America by the US regulator.
India exports $15 billion in over-the-counter and generic prescription drugs annually. It is the second-largest drugs supplier to the United States after Canada, earning it the title of "pharmacy to the world".