📰India's Private Credit Hits $10B

Hello. Private credit is exploding in India, and international firms like BlackRock want in on the action. We’ll investigate, and then close with Gupshup, a round-up of the most important headlines.

BTW: India is the birthplace of four of the ten largest religions today — which are they? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

BlackRock In Talks To Enter India’s Exploding Private Credit Market

India’s private credit industry hit a huge milestone with its first $10 billion (₹840 billion) year, driven by increasing lending from both domestic and international players. Notably, BlackRock is looking to form a 50-50 joint venture with Jio dedicated solely to private credit, underscoring the growing interest from global investors, according to Bloomberg reporting.

Private credit allows alternative investment firms to lend directly to companies under different terms and conditions than traditional banks and bonds, offering companies greater flexibility while providing investors with diversified opportunities. Due to stricter regulatory restrictions and heightened credit risks in India, alternative investors are capitalizing on market shares previously held by local banks, which often cannot maintain risk on their books.

The demand for private credit has surged, particularly in the industrial sector, as companies seek flexible, small, green loans for new projects. Infrastructure spending in India is projected to reach $1.7 trillion (₹143 trillion) by 2030, with large firms like Adani leading the way while outsourcing ancillary work to small and medium-sized enterprises that struggle to secure traditional funding. Local private credit providers have thrived by leveraging existing relationships, their proximity to borrowers, and their ability to deliver cash quickly, capturing 42 percent of deal volume ($2.5 billion/₹210 billion) in the first half of 2024, up from 30 percent ($1.3 billion/₹109 billion) in the first half of 2022.

While current regulations on private credit are minimal, this landscape may soon change. Reserve Bank of India Governor Shaktikanta Das has indicated a need for regulatory guardrails to manage private credit's role in funding middle-market firms with low free cash flow.

Internationally, while domestic investors benefit from lower average deal sizes in Indian private credit (averaging $25.2 million compared to $161.3 million across Asia), American giants such as Apollo, Cerberus, and BlackRock are partnering with local funds to pursue higher yields in India.

Despite the encroachment of private credit into the middle-market segment, banks will continue to play a critical role in project financing, especially for large-scale initiatives like those led by Adani. While banks typically offer larger deals at lower rates, private credit often involves higher costs and stricter covenants that limit borrowers' ability to raise additional debt or equity.

An alternative debt financing option is through bonds. Although corporate bonds are well-established in the U.S., India faces challenges in price discovery due to limited domestic and foreign participation. Indian investors tend to favor equities, and foreign investment in Indian bonds is often restricted, complicating price discovery and the ability of regulatory agencies to assign accurate ratings and yield requirements. However, regulators see India’s potential inclusion in the JP Morgan index and the removal of foreign investment barriers as significant steps toward improving price discovery.

As the bond market becomes more liquid, both middle-market and blue-chip companies will benefit from additional funding sources, enhancing their financial flexibility.

Macro

• RBI Governor Shaktikanta Das says an interest rate cut at current state would be “premature” and “very risky.” Upon his comments, Indian bonds dropped further as 10-year yields rose 4 basis points to 6.82 percent, the steepest increase in two weeks, while Das dismissed claims that the RBI was slow in cutting rates, stating that market expectations aligned with the central bank's well-anticipated policy decisions. (BBG)

• India must expand credit access to more high-yield companies, according to Prasanna Balachander, global markets head at ICICI Bank Ltd., who spoke at the India Credit Forum in Mumbai on Friday. The corporate bond market, valued at 47 trillion rupees ($559 billion), illustrates this challenge, accounting for just 16 percent of GDP—one of the lowest globally—despite record growth, and bankers argue that doubling this share is crucial to reaching the $5 trillion economy target within three years (BBG)

• The Reserve Bank of India has barred four shadow banks, including DMI Finance and Navi Finserv Ltd., from issuing new loans due to excessive interest rates charged to customers Last week, RBI warned it would crack down on shadow banks for financial malpractice. The move is expected to strengthen India’s financial sector in the long term, despite short-term stock volatility in the financial services sector. (BBG)

• India is considering reducing tariffs on machinery imports for green hydrogen production, aiming to become a key player in the clean fuel sector. The government is also discussing lowering the 12 percent goods and services tax on green hydrogen, according to sources familiar with the talks. (BBG)

• Despite being the worst-performing currency in Asia last quarter, the Indian rupee is expected to show resilience against a strengthening dollar as the US elections approach, according to analysts. Vivek Kumar of QuantEco Research noted that the rupee tends to outperform during periods of dollar strength due to support from the Reserve Bank of India and its strong reserves. While the rupee recently hit a record low of 84.0975 per dollar, it remains one of the least volatile currencies globally, aided by the central bank's efforts to stabilize it amidst fluctuating dollar dynamics. (BBG)

• India's trade deficit narrowed to $20.78 billion in September, the lowest in five months, largely due to a decline in gold imports. This figure was significantly lower than the $24.63 billion forecast by economists, down from a $29.6 billion deficit in August. While imports increased by 1.6 percent year-over-year to $55.36 billion, exports saw a modest rise of 0.5 percent to $34.58 billion, reflecting ongoing challenges for escalating conflicts in the Middle East. (BBG)

Equities

• $6 billion in new issuance in India’s IPO market pipeline. Listings have been approved by regulators and are expected to publicly trade in the next six months. (BBG)

• As HDFC Bank and Kotak Mahindra Bank prepare to report their earnings, rising credit costs and difficulties in attracting customer deposits will be key areas of concern. With more Indians opting for equity funds over traditional savings accounts, banks have experienced a decline in deposits, leading to slowed loan growth, particularly in retail lending, due to central bank concerns about unsecured loans. HDFC Bank reported a modest 5.1 percent increase in deposits but expects only a 1.9 percent growth in quarterly net income as it works to align its loan-deposit ratio with regulatory standards. (BBG)

• Hyundai IPO fully sold, oversubscribed by two times. The nation's largest-ever listing attracted bids exceeding six times the shares allocated for foreign and local money managers, although the retail portion was only 50 percent subscribed by the end of the three-day bidding period. Despite a sluggish start, with the sale only 40 percent subscribed in the first two days, institutional demand surged yesterday. (BBG)

• Saurabh Gadgil has become a billionaire following the successful IPO of PN Gadgil Jewellers, a 192-year-old family business, with shares rising 61 percent since its September listing in Mumbai, timed just before the wedding and festival season. His net worth now stands at nearly $1.1 billion, according to the Bloomberg Billionaires Index. (BBG)

Alts

• Elon Musk’s Starlink has secured a significant victory in India’s satellite broadband market, as the government announced that spectrum will be allocated rather than auctioned, countering requests from billionaires Mukesh Ambani and Sunil Mittal. Telecom Minister Jyotiraditya Scindia confirmed that airwaves for satellite use will follow global administrative allocation practices, but emphasized that spectrum pricing will be regulated to prevent newcomers like Starlink from acquiring it cheaply. (BBG)

• PineBridge Investments is maintaining its avoidance of Indian sovereign bonds, despite their popularity among global investors this year, due to local bureaucratic challenges and a preference for higher yields in Latin America. Senior portfolio manager Anders Faergemann noted that the risks associated with settling bond trades in India outweigh the potential market gains. PineBridge Investments is a New York-based asset manager with $168.2 billion in assets under management. (BBG)

• The Reserve Bank of India has lifted a seven-month restriction on JM Financial Products Ltd, allowing the brokerage to resume financing against shares and debentures. JM Financial announced on October 18, 2024, that the RBI's decision enables it to provide this financing immediately, in compliance with applicable laws. The restrictions were originally imposed on March 5, 2024, preventing the company from offering loans against shares and debentures, including those for initial public offerings. (Mint)

• Gold prices surged past the $2,700 ( mark for the first time today driven by safe-haven demand amid uncertainty surrounding the U.S. presidential elections and ongoing Middle East conflicts. Spot gold rose 0.6 percent to $2,709.81 per ounce, having reached an all-time high of $2,714 earlier in the day, while U.S. gold futures increased 0.7 percent to $2,725. (Mint)

Policy

• India’s External Affairs Minister Subrahmanyam Jaishankar highlighted that a lack of trust among Shanghai Cooperation Organization (SCO) member nations is harming economic and trade relations. Speaking at the SCO summit in Islamabad, he emphasized that effective trade and collaboration rely on good neighborly relations, calling for "mutual respect and sovereign equality," while indirectly referencing India’s tensions with China and Pakistan. Pakistan’s Prime Minister Shehbaz Sharif echoed this sentiment, urging countries to prioritize collaboration over political differences. (BBG)

Oh, and India is the birthplace of Hinduism, with 1.2 billion followers, Buddhism, with 520 million followers, Sikhism, with 30 million followers, and Jainism, with 4.5 million followers.

See you next week.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 84.08 Indian Rupee