Offering private credit opportunities in the mid-market enterprise space.
The Case for Private Credit
Debt plays a major role in the economic growth of a country as it offers a non-dilutive, lower cost alternative to companies looking to raise capital. The primary sources of debt are banks, NBFCs, and the public corporate bond market. Despite being the fastest-growing economy in the world, India still faces significant gaps in enterprise credit which cannot be serviced by traditional sources of capital.
Traditional lenders such as banks and larger NBFCs are inflexible in enterprise lending and tend to serve the most vanilla needs through policy-based lending. On the other hand, mutual funds and insurance companies are restricted by their respective regulations and face lack of access to this space and limited ability to assess credit worthiness.
The domestic bond market has not been able to alleviate the situation. The overall market is dominated by government securities (G-Secs) and State Development Loans (SDL bonds), which accounted for 70% of the total outstanding in the bond market.
Private Credit started filling the white space left by traditional lenders in the mid-market lending space supported by a favourable regulatory landscape. Private credit provides an alternative source of financing for businesses with unique funding needs and irregular cash flows. Private Credit lending mostly takes place via asset managers involving a private credit/alternative investment (AIF) fund that intermediates between the ultimate lender and borrower. Such loans are generally senior secured, variable rate, and may comprise multiple credit facilities. The players in the market were non-bank lenders who are primarily private credit fund managers.
AIFs are garnering higher investments thanks to their distinctive approach to fixed-income investing, combining the resilience of private lending with the flexibility of alternative structures.
Private credit investments are largely insulated from market fluctuations, providing a buffer against broader economic cycles and market volatility.
Thanks to a more consistent income stream and lower price swings, private credit offers a level of predictability that is often lacking in traditional investments.
Adding private credit to a portfolio spreads exposure across different asset classes, reducing overall risk and enhancing long-term resilience.
By targeting well-structured lending opportunities with strong credit fundamentals, private credit AIFs can deliver superior returns relative to the level of risk undertaken.
These funds often invest in niche or underserved segments of the credit market, providing access to deals that are typically unavailable through public markets.
Even after accounting for inflation and taxes, private credit AIFs are positioned to generate real positive returns, preserving and growing investor capital.
