The Private Credit Paradox Unveiled
India's real estate sector is navigating a significant contradiction within the private credit market. Despite attracting the largest share of capital deployment in the first half of 2026, the sector is simultaneously identified by investors as carrying the highest perceived default risk. This finding comes from the EY Private Credit Report H1 2026, which sheds light on the complex dynamics at play.
Dominant Deployment Despite Perceived Risk
According to the EY report, real estate accounted for a substantial 35% of the total private credit deal value in H1 2026, making it the leading sector for capital allocation. This significantly outpaced other sectors, with healthcare following at 13% and food and beverage at 12%. However, this strong investment trend exists alongside a clear apprehension among investors.
The June 2026 EY Private Credit Pulse Survey revealed that investors ranked real estate as the sector with the highest perceived default risk. Other sectors noted for high risk included roads, energy and renewables, and metals and manufacturing. The report indicates that this perception has not deterred real estate's position as the primary area for private credit deployment, underscoring a notable contrast between persistent demand and investor vigilance regarding risk profiles.
Market Resilience and Shifting Deal Sizes
India's overall private credit market demonstrated resilience, with investments reaching US$3.5 billion across more than 100 transactions exceeding US$10 million in H1 2026. This figure is broadly consistent with the US$3.4 billion recorded in H2 2025. Activity was bolstered by refinancing, holding company funding, and acquisition financing, even in the face of global macroeconomic uncertainties.
A notable shift in the market saw mid-sized transactions gaining prominence. Deals ranging from US$10 million to US$60 million constituted 61% of the total deal value in H1 2026, up from 51% in the preceding half. Conversely, transactions above US$120 million decreased to 18% of deal value from 27%. This indicates a growing focus among lenders on targeted opportunities with clearer risk-return visibility. Domestic funds emerged as a significant force, contributing 74% of the total deal value and approximately 79% of the deal volume, particularly in mid-market refinancing and special situations.
Positive Investor Outlook Amidst Challenges
Despite the highlighted risk concerns, investor sentiment towards private credit remains largely positive. Nearly 73% of respondents to EY’s survey anticipate strong market activity over the next one to two years. Demand is primarily driven by stress-related situations, capital expenditure requirements, and merger and acquisition financing needs. The report also noted that approximately 33% of respondents targeted internal rates of return (IRRs) between 12% and 18%, while a larger 67% preferred opportunities with IRRs above 18%. EY projects continued resilience for India's private credit market, with real estate expected to remain a key deployment area, alongside potential growth in infrastructure and other asset-heavy sectors.