With stress rising in the US private credit market, should Indian investors be worried about spillover risks? Higher redemptions, liquidity pressure, and weaker sentiment in the US have raised concerns globally. Given India’s different market structure post the 2018–2020 crisis, is it largely insulated, or could global developments still impact returns and investor flows?

Advice by Bhavdeep Bhatt, CEO, Northern Arc Investment Managers

The US private credit market has come under pressure in recent weeks, with higher-than-usual redemptions creating liquidity stress in an already illiquid segment. This, along with mild deterioration in credit quality and rising geopolitical uncertainty, has turned sentiment cautious. The outlook has weakened, with concerns around both liquidity and credit risk.

For general readers, the US credit market is a large financial system where governments and corporations raise funds by issuing debt instruments such as bonds, mortgage-backed securities, and commercial paper. It is typically bigger than the equity market and serves as a key indicator of overall economic health.

The key question is whether this stress could spill over to India. Structurally, the two markets are very different. While the US has seen uninterrupted growth since the Global Financial Crisis, India went through a sharp correction between 2018 and 2020, triggered by rising NPAs and a liquidity crunch during Covid. That phase exposed a critical flaw—asset-liability mismatches in funds offering daily liquidity while investing in illiquid instruments.

Post this reset, India’s private credit market has evolved meaningfully. There has been a clear shift from open-ended structures to close-ended Alternative Investment Funds (AIFs), where capital is locked in and aligned with the underlying asset tenure. This eliminates the liquidity mismatch that is currently stressing US funds and ensures more predictable cash flows for investors.

Fundamentals have also improved. Corporate balance sheets are stronger, with debt-to-equity ratios at multi-year lows, and banks are better capitalised. At the same time, regulatory oversight has tightened, with stricter norms around leverage, refinancing, and governance, reducing risks like evergreening.

Importantly, investor behaviour in India has also become more aligned with product structure, with better awareness around liquidity terms and risk-return trade-offs. This reduces the likelihood of panic-driven redemptions that can destabilise funds.

Taken together, these factors suggest that India’s private credit market is better positioned to withstand global volatility. While global sentiment can have some indirect impact, the underlying structure, improved credit quality, and stronger regulation make India relatively insulated from the stress currently unfolding in the US.

Published on: Apr 17, 2026 7:30 PM IST