Ashika's Rahul Arora prefers mid-cap IT, sees upside in HDFC Bank and backs Eternal over Zepto

Ashika Institutional Equities CEO Rahul Arora believes investors should prefer mid-cap IT companies over large-cap peers, citing stronger growth prospects. He also remains constructive on packaged food companies, sees HDFC Bank as an attractive valuation play and favours Eternal over Zepto in the quick commerce space.

Arora said large IT companies are unlikely to deliver high single-digit growth over the next few years, while mid-cap firms are better positioned because of their focus on niche capabilities and acquisitions. He expects this trend to continue despite higher valuations in the mid-cap segment.

Among consumer stocks, Arora said packaged foods remain his preferred segment over the next two years. While he acknowledged Nestlé India's strong earnings and margin expansion, he said valuations limit upside. Instead, he highlighted Tata Consumer Products and Britannia Industries as better opportunities, while also naming Gillette India

as an attractive staples play.

"I think if you're looking at marrying growth with valuations, packaged foods is probably the best place to be," he said.

Arora said Eternal remains his preferred investment, while Swiggy

could benefit if Zepto's reported valuation reset delays its initial public offering (IPO). He said Zepto's large cash burn and discount-led strategy could force the company to return to the capital markets within 18 to 24 months if profitability remains elusive.

He added that he would avoid investing in Zepto and "if you must play that space, you could probably be playing Eternal."

Arora said HDFC Bank is trading at attractive valuations after its merger with HDFC Ltd and could re-rate once there is clarity on the chief executive's tenure. He expects the bank to grow at 13-15% over the next two years and believes a leadership announcement could act as the next trigger.

"My sense is, if there is some clarity on the CEO announcement, there is a very good chance that the stock would return about 20-25%," he said.

Arora added that despite near-term concerns, investors who are underweight on HDFC Bank should continue holding the stock as the combination of valuations and growth remains favourable.

For the full interview, watch the accompanying video

Catch all the latest updates from the stock market here