Will US private credit stress deepen pain in Indian equity markets?

investors, and capital typically recedes from emerging markets as investors scramble for safety.First Global founder Devina Mehra noted that private credit concerns have emerged amid a broader global environment already tilting risk-off. The current stress underscores the inherent risks of investing in illiquid instruments, where exits can become challenging during periods of uncertainty, she said.Since the US-Iran conflict erupted, the benchmark Nifty 50 is down more than 6%.

Brent crude surged to around $103 on Tuesday after the closure of the Strait of Hormuz, through which about a fifth of global oil and gas flows.Historically, widening private credit spreads and stress signals have preceded risk-off moves in public equities, said Nilesh Shah, managing director at Kotak Mahindra Asset Management Co., noting the lag can range from immediate to up to 12 months depending on the severity.Private markets are opaque and illiquid, while public markets sniff trouble first–liquid proxies scream early, he added. “We’ve seen it in cycles—credit cracks show in listed vehicles months before broad equity drawdowns bite hard.”When institutions face private credit drawdowns or liquidity pressure, they de-risk EM equities first—a classic flight to familiarity.

Developed markets (US/Europe) get defended longer as ‘safer’ core; EM/India seen as higher-beta, easy to cut for quick liquidity/rebalancing, he said. While India may hold better than most peers, Shah said EMs get sold before developed markets in a pure risk-off situation.