"India’s debt alternatives space is increasingly grabbing global investor attention."

Can you share insights on the benefits debt alternative investment funds (AIFs) bring to mid-market enterprises?

In this uncertain and tumultuous world, no source of capital is permanent to an enterprise. Companies that relied heavily on conventional sources of debt capital historically are increasingly at the risk of either capping out on their limits or exposing themselves to a dearth in the availability of capital at the first hint of market trouble. Therefore, it is imperative for companies, especially in the mid to small spectrum, to widen their horizon in terms of sources of capital beyond the traditional lenders. As mid-market companies do not always have the requisite size and recognition to access debt capital markets, debt AIFs become the best refuge in their course of diversifying pools of debt capital, while progressing towards direct onshore and offshore issuances.

How has the landscape of fixed income investments in India evolved over time, especially with respect to private credit as an emerging investment avenue at a global scale?

The substantial size of the Indian debt market is ironically not due to widespread awareness among retail and professional investors. This discrepancy can be attributed to concepts being beyond the comprehension of an average investor, societal perceptions of debt in India, and the relative outperformance of the equity market over other markets for decades. However, the emergence of tech platforms has facilitated access to debt markets, attracting both boomers and millennials to new-age asset managers over the past decade. While India remains one of those few outliers within her peers for the lack of democratic access to the debt markets, the global investor fraternity has already spotted the huge opportunity in India with large pension funds, banks, and asset managers exploring avenues beyond equities for participating in the great Indian dream of the 21st century. A reliable regulatory landscape, the relative stability of the private credit market in India, and the self-learning bankruptcy ecosystem have only solidified the intent of global investors toward the Indian private credit space.

What are the international investor preferences and the types of investment opportunities that have gained traction?

If one were to differentiate between private wealth and non-private wealth, the private wealth segment has predominantly chased high-yielding products like structured notes, levered bonds, high-yield debt funds, pre-IPO funds, etc. The sudden market correction and volatility witnessed during Covid and the subsequent geopolitical issues since 2022 have changed the course a bit, and investors are now seeking stable yet moderately yielding products while keeping at least part of their portfolios away from volatility.

From an institutional standpoint, small chunks of capital are being set aside for premium debt issuances and emerging/small fund managers focused on niche strategies, again trickling down from the reasons mentioned above. One must view this as a taste test before massive allocations come into emerging markets in the next decade. While debt alternatives have found some love in emerging markets, India for its credit is inching towards becoming a focus geography away from the ambit of wider emerging market.

How is the interest of global investors towards India's debt alternative investment space taking shape?

India’s debt alternatives space is increasingly gravitating toward global interest, thanks to steady economic growth and volatility in the regional powerhouse. While the relative value issues have resisted an explosion in this space, multiple asset managers and banks that I meet globally have voiced their interest in learning the Indian debt space and are toying with the idea of deploying either teams or capital from a strategic standpoint. What’s exciting is that most of this interest isn’t stemming from the pools of capital exiting the troubled neighbors, but rather fresh allocations to India.

Disclaimer:

The views provided here are personal and do not necessarily reflect the views of Vivriti. This article is intended for general information only and does not constitute any legal or other advice or suggestion. This article does not constitute an offer or an invitation to make an offer for any investment.