On the fundamental side, the green shoots have just started to appear with rural India leading the way. To attain growth and peace, India needs to solve the Chinese puzzle. It is still not known, if the government’s new initiatives will make any impact.

The new series has started on a strong footing. But, signs of an impending correction are being seen. Even after the decent run of two prolific months, one can argue whether the turnaround has truly begun. The bulls are merely running on a strong flow of FII steroids powered by lower interest rates.

Chinese obsession not leaving anytime soon:

In a move, directly aimed at China, India is mulling to impose a basic customs duty on solar products. Import duty can be increased up to 20-25% on imported solar modules. It would be eventually raised to 40% a year. For solar cells, the customs duty will start with a 15% levy this August and will be raised to 30%.

The move is in tandem with the government's new-found enthusiasm to douse the Dragon's fire. China supplies ~80-90% of the equipment used in the rapidly expanding solar energy sector of India.

Rural to lead the way:

The government's extended focus on rural India post lockdown is likely to boost the sector's prospects. A higher allocation to MGNREGA and newly launched PM Rojgar Yojna is expected to help declining unemployment and increase rural income.

The management commentary from the rurally exposed companies is also turning positive. M&M is seeing a strong spike in rural demand for its tractors. Hero MotorCorp expects a normal monsoon forecast, strong harvest and government support to boost 2 wheeler sales. HUL expects higher MGNREGA allocations and a new Rojgar scheme to put more money in the hands of rural consumers. M&M Finance is also reporting some traction on tractor side and pre-owned vehicles as farm activities have started to respond positively.

Key takeaways:

Renewable energy is a growing sector in India. The plan to curb imports and promote the local industry is perfectly suited to the 'Aatmanirbhar' aspirations. However, a big question mark arises on the availability of a plan B. The inability to create a strong local supply chain could completely ruin the growth of a promising sector.

Continuing with the 'Aatmanirbhar' theme, the rural market is counting on big bang reforms currently being undertaken. The scrapping of essential commodities acts and allowing free market access to farmers should reduce the interference of middle-men with better value realization for their products.

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