India’s private credit market is gaining momentum, presenting a significant opportunity for investors seeking stable returns and diversified exposure. As equity markets continue to see heightened volatility coupled with global uncertainties amidst foreign investor outflows, private credit is emerging as a compelling alternative — not just for risk diversification but also as a strategic investment avenue.
Speaking at the VCCircle LP Summit 2025 in Mumbai, Amit Kansal, Head of Alternate Investments – Fixed Income at Aditya Birla Sun Life AMC, shared valuable insights on how private credit can fill the funding gaps, thrive in an expected rate cut cycle environment, and align with diverse investor risk profiles.
Private Credit: Filling Market Gaps with Tailored Solutions
Kansal highlighted that private credit addresses financing gaps overlooked by traditional lenders such as banks and NBFCs. He explained that private credit funds play a crucial role in providing capital for productive assets, including cost-overrun financing, last-mile funding, and strategic capital solutions.
“Private credit is complementing the demand which is not catered to by banks and NBFCs or debt mutual funds,” Kansal noted. He highlighted acquisition financing, bridge loans, and sponsor-backed financing as prime examples where private credit can deliver customized solutions.
By catering to these niche requirements, private credit enables businesses to unlock growth opportunities that may otherwise remain constrained by rigid lending frameworks.
Navigating Interest Rate Changes with Private Credit
Kansal addressed concerns around the potential impact of interest rates on private credit investments. He emphasized that private credit pricing has minimal correlation with benchmark interest rates, making it resilient during rate fluctuations.
“The inelasticity is relatively high and in fact that increases the attractiveness of this asset class, because as your risk-free rate goes down, the premium stays stable even if it doesn't increase. The alpha or the delta that you create makes it more attractive as compared to traditional fixed income products” Kansal explained.
Diverse Strategies for Varied Risk Profiles
Kansal emphasized the importance of aligning private credit investments with investors’ risk appetite. Drawing a comparison to equity markets, he likened performing credit strategies to large-cap investments, offering stability and predictable returns. On the other hand, special situations strategies resemble small-cap investments, with higher risks but the potential for substantial rewards.
“So, basically it is a function of the kind of stability you want in the portfolio, the kind of drawdowns or the volatility you are okay with,” noted Kansal.
Domestic Funds’ Advantage in the Evolving Landscape
Kansal also addressed the growing influence of domestic funds in India’s private credit market.
“Domestic fund managers are much closer to the Indian corporates and have a much deeper understanding of credit and have an advantage in terms of structuring. Whereas advantage of global players lies in terms of scale,” Kansal said.
The Road Ahead for Private Credit
Looking ahead, Kansal predicted continued growth in India’s private credit market, driven by evolving investment preferences and increasing demand for flexible financing solutions. He also highlighted the need for flexible AIF structures to deliver more liquidity and value to investors.
He felt the structures could be made more inclusive to allow for liquidity window to investors without compromising on the pass through nature of taxation for Category II AIFs.
With its ability to provide stable returns, fill critical funding gaps and adapt to diverse investor strategies, private credit is poised to play an increasingly important role in India’s evolving investment landscape.
No VCCircle journalist was involved in the creation/production of this content.