Kotak Alternate Asset Managers Ltd., part of the Kotak Group, is preparing to raise as much as $2 billion for its third private credit fund, underlining the growing importance of alternative financing channels in India’s capital ecosystem. The fund, expected to reach final close by September, comes at a time when global private credit markets are witnessing heightened scrutiny and liquidity concerns.

According to Managing Director Srini Sriniwasan, the firm is targeting opportunities across a diversified set of sectors including data centres, pharmaceuticals, diagnostics, steel, and cement. These sectors reflect both structural growth themes and capital-intensive business models, where traditional bank lending is either constrained or selective.

The fundraising effort gains significance against the backdrop of recent disruptions in developed market private credit. In the US, large asset managers have been forced to mark down investments amid rising stress in leveraged credit. Simultaneously, redemption pressures have led firms such as Morgan Stanley and Cliffwater LLC to impose withdrawal limits on certain funds. This has raised concerns over liquidity mismatches in open-ended credit vehicles.

Kotak’s approach, however, is structurally different. The Indian private credit ecosystem is largely built around closed-ended funds, where investor capital remains locked in until maturity. This significantly reduces the risk of sudden redemption-driven liquidity events, a key vulnerability currently visible in Western markets. This structural distinction is increasingly being positioned as a strength in attracting long-term institutional capital into India.

That said, currency volatility remains a critical overhang for foreign investors. The Indian rupee has been under pressure due to elevated energy prices and external imbalances, recently touching record lows against the US dollar. For global allocators, this introduces an additional layer of risk, as returns from high-yield credit investments can be eroded by adverse currency movements.

Despite these concerns, India’s private credit market is witnessing strong momentum. As per estimates by Ernst and Young, the market expanded by 35 percent to $12.4 billion in 2025. This growth is being driven by a combination of tighter bank lending standards, rising infrastructure financing requirements, and increasing demand for structured capital solutions.

A notable inflection point for the market came with the Shapoorji Pallonji Group’s $3.4 billion fundraising last year, one of the largest private credit deals in India. The transaction offered yields as high as 19.75 percent, highlighting the premium investors are willing to pay for structured risk in capital-constrained environments.

Kotak’s new Strategic Situations Fund is expected to follow a hybrid investment strategy, primarily deploying capital as debt with embedded optionality to convert into equity. This approach allows investors to participate in downside-protected structures while retaining upside potential in case of business recovery or growth.

The fund will be raised through Kotak Alternate’s platform in GIFT City, India’s designated international financial services hub. The choice of jurisdiction is strategic, offering tax efficiency and regulatory flexibility to attract offshore capital.

Kotak has already established a track record in this space through its earlier funds, including a $1 billion special situations fund and a $1.5 billion strategic situations vehicle. These funds have backed companies such as Sify Technologies, AGS Transact Technologies, and Nuvoco Vistas Corp. The firm also manages an infrastructure-focused vehicle with assets of $664 million, indicating a broader push into long-duration capital strategies.