Risk reward is more favourable for midcap cement companies: Nitin Jain

In an interaction with ET Now, Nitin Jain of Edelweiss Financial Services, said cement demand will pick up with all the investment planned in the infrastructure space. Excerpts:

ET Now: It is that time of the year where the favourite activity on D-Street is to talk about index level for 2016 and talk about top stock ideas for 2016. So let us start with your house top ideas for 2016. What makes you bullish on Dalmia Bharat? We know they have a large installed capacity, but the challenge with buying a cement company right now is that cement prices have come down and cement demand is actually quite weak. What is your take on this?

Nitin Jain: If we believe that the economy is going to turn around with all the investment planned in the infrastructure space, then at some point the demand will pick up. Most of these companies are probably at approximately 55 to 60 PLF, which if they go to 70-80, the operating leverage that will kick in will be significant. That is why are bullish on a lot of midcap cement companies. This is one of the spaces where the risk reward is more favourable. Quite a few midcap cement companies might turnaround if our hypothesis on the infrastructure space and the economy turnaround plays out.