India’s macro trajectory is appealing to global investors at a time when uncertainty in most other markets is rife. The domestic economy is on track to become the world’s third largest by 2027, with GDP expected to reach approximately $5.3 trillion and growth sustaining at around 7% annually.
Further, India’s story is not a cyclical one – it is underpinned by structural reforms, geopolitical stability and a broad-based investment cycle spanning infrastructure, manufacturing and energy.
At the same time, rising household incomes and a rapidly expanding middle class are driving consumption, reinforcing demand across sectors. Crucially, this growth is highly credit-intensive. Yet India remains a relatively underpenetrated credit market, creating a powerful alignment between macro expansion and financing demand.
For asset owners, this combination of strong growth, structural inefficiency and improving financial architecture positions Indian private credit as a compelling source of scalable, risk-adjusted returns and portfolio diversification.
Credit gap offers emerging opportunity
At the heart of the opportunity lies a persistent structural imbalance. India’s private debt-to-GDP ratio remains significantly below that of developed markets, despite improving corporate balance sheets and rising capacity for leverage.
This gap is most visible in the mid-market segment. With over 115,000 enterprises contributing more than 30% of GDP, this cohort represents a large and economically critical borrower base. However, it remains materially underserved. Current estimates point to approximately $33 billion in unmet demand for mid-market lending.
The reasons are structural. Banks remain risk-averse, particularly toward non-investment grade borrowers, while non-bank financial companies (NBFCs) – historically key lenders – face liquidity constraints and tighter regulation. The result is a widening demand-supply mismatch in credit.
Private credit in India: from niche to core
Against this backdrop, private credit in India has moved rapidly from a niche allocation to a core component of the alternatives landscape.
The market has expanded 25-fold over the past decade to approximately $30 billion in AUM, making it one of the fastest-growing segments within Indian alternatives.
Growth is set to continue. Projections suggest the market could reach $96 billion by 2030. Yet even at that scale, private credit would represent only around 0.6% of GDP – well below the 3% to 4% levels typical in developed markets.
Such dynamics suggest this is a market still in its early institutionalisation phase. Early capital may access a combination of structural inefficiencies, favourable deal dynamics and limited competition – conditions that tend to compress over time as markets mature.
Finding alpha in mid-market and structured credit
Within India’s expanding universe, alpha is concentrated in segments where complexity, structuring and local expertise matter most.
Mid-market corporates are a key focus. These businesses typically exhibit lower leverage, around two-times compared with 3.6x for large corporates – yet often deliver strong growth and cashflow visibility. Their limited access to traditional financing creates a premium for flexible capital providers.
Returns reflect this dynamic. Medium-risk, well-secured transactions in this segment may generate internal rates of return in the range of 14% and 17% . Importantly, these returns are underpinned not by excessive risk-taking, but by structural advantages, including:
- The ability to structure transactions with hard collateral, covenants and cashflow controls.
- Limited competition relative to large-cap lending.
- Strong alignment with borrowers through bespoke financing solutions.
In parallel, performing credit and special situations are emerging as the dominant growth areas, expected to account for over half of total market AUM.
For investors, the implication is clear: the “sweet spot” lies in capturing both the illiquidity premium and the complexity premium, where structuring capability drives differentiated returns.
Supportive tailwinds: regulation, M&A and capital flows
The evolution of India’s regulatory framework has been an enabler of this market.
The introduction of the Insolvency and Bankruptcy Code (IBC) in 2016, alongside subsequent reforms, has materially improved creditor protections and recovery outcomes. Recovery rates have risen from around 25% to approximately 70%, reinforcing confidence in the enforceability of credit structures.
At the same time, market dynamics are generating sustained demand for private credit. Private equity activity has remained robust, with investment volumes consistently exceeding $60 billion in recent years, often requiring flexible financing solutions. A growing pipeline of refinancing needs, particularly in high-yield segments, further supports deal flow.
Global capital has already begun to respond. More than $45 billion has flowed into India private credit since 2020, reflecting increasing institutionalisation of the asset class.
A distinct portfolio position
For Asian asset owners, Indian private credit offers a differentiated portfolio role – sitting between income generation and capital preservation, with relatively stable cashflows and likely lower mark-to-market volatility compared with public markets.
However, successful allocation requires careful manager selection. Origination capability, underwriting discipline and on-the-ground expertise are critical in navigating local market dynamics.
Investors must also account for illiquidity, longer investment horizons and emerging market-specific risks, including regulatory and execution considerations. Yet these are not drawbacks – but features that must be actively managed to capture the associated return premium.
