India's private credit market touches $6bn in H1 2024
What's the story
India's private credit market experienced a significant surge in the first half of 2024 (H1 CY2024), with investments reaching $6 billion, according to a report by EY.
This robust performance is particularly noteworthy, when compared to the total investment of $8.6 billion for the entire year of 2023.
The growth was primarily driven by high-value transactions in sectors such as real estate and manufacturing, with capital expenditure playing a crucial role.
Market dynamics
Momentum surpasses previous year's deal flow
The momentum in H1 CY2024 has already exceeded the deal flow of the previous year, indicating a rising interest and activity in India's private credit sector.
The EY report does not account for smaller deals under $10 million and offshore credit raises.
When these additional transactions are considered, they contribute at least an extra $174 million and $1.9 billion respectively, further highlighting the market's strong trajectory.
Investment distribution
Global funds contribute 53% of total investments
Global funds, traditionally dominant players in the private credit market, provided 53% of total investments during H1 CY2024.
This is a decrease from their contribution of 63% over the past two years.
The decline has permitted domestic funds to increase their market share, leading to a more diversified investor base.
High-value transactions that significantly contributed to this growth include deals by Reliance Logistics and Warehousing ($697 million), Vedanta Semiconductors ($301 million), Matrix Pharma ($293 million), and GMR Airports ($271 million).
Sector performance
Real estate and manufacturing sectors attract most deals
Approximately 60% of respondents to EY's survey, identified manufacturing and real estate as the sectors attracting the most deal flow. This is consistent with earlier surveys.
Capital expenditure (Capex) was found to be the primary driver of private credit demand, with half of fund managers expecting Capex-related investments to continue leading the market over the next 12 to 24 months.
Future prospects
Fund managers project strong outlook
The future of India's private credit market looks promising, with about 58% of fund managers predicting that private credit investment activity will range between $5-10 billion over the next year.
However, potential risks have been identified by the Reserve Bank of India (RBI), which has expressed concerns about the rising interconnectedness between banks, private credit, and non-banking financial companies (NBFCs), as well as the growing complexity of deal structures.