Report: KKR sees private credit opportunities in India

The alternative asset manager thinks both public and equities and parts of private credit are likely to deliver above-average returns over the next three to five years for global investors.

India’s GDP growth may increasingly rely on private capital as banks’ ability to provide that funding weakens, according to KKR’s Henry McVey.

In his latest white paper, McVey, the firm’s head of global macro and asset allocation, sees debt as eventually becoming a more attractive investment than equities in India. In particular, the country continues to see a “burgeoning opportunity” across performing private credit, he writes.

McVey notes that investors are increasingly putting capital toward liquid emerging market debt rather than funding private capital; he reasons this is likely because private debt probably provides the best risk-adjusted return.

McVey maintains a positive outlook about the solid progress in the country’s legal system, under the government of Prime Minister Narendra Modi, to encourage inbound foreign investments. Major regulatory changes such as the new bankruptcy laws, goods and services tax, along with major anti-corruption efforts and a clean-up of the financial services industry represent historic steps forward, he says.

Also, the 440 million Millennials and 390 million members of Generation Z in India are moving the country’s consumer industry and GDP forward. India’s GDP-per-capita, standing at $1,650 in 2015, is comparable to China’s in 2005.

However, the report voiced security risk concerns over Pakistan, and some handwringing over whether the new head of the Reserve Bank of India, Urjit Patel, will bring any changes to the current situation.

Yet, with its large consumer economy, India may look inward rather than globally for future growth.

Across the region, with economies still growing at high single digits or better across China, India, and Indonesia, KKR sees an increasing demand for value-added services, including food safety, healthcare services and media. The firm will therefore continue to focus on capturing investment opportunities in the higher value-added areas of Asia’s emerging economies.