Zomato, the food delivery start-up, made a stellar debut on the bourses, as its stock opened with a more than 50 per cent premium on Friday morning compared to its final offer price of Rs 76 . Since then, it has extended its gains and was holding above Rs 120. When Zomato issued its Initial Public Offering (IPO) a few days ago, it was subscribed 7.45 times by retail investors, who have a far less appetite for risks. Given this background, how should these retail investors see the primary market, as this year will likely see a number of IPOs by India's emerging start-up players, including tech-based firms like Paytm, Mobikwik, and Policy Bazaar.
What Is A Primary Market?
The primary market is where securities are created. Firms float new stocks and bonds to the public for the first time in this market. In this market, a company sells shares directly to investors, who may buy stocks through intermediaries like a merchant bank that did the initial underwriting. Once this process is over, stocks are traded in the secondary market (stock exchanges), where investors purchase security from another investor, who may have bought them in the primary market.
Zomato's primary market offering comprised a fresh issue of Rs 9,000 crore and an offer for sale of Rs 375 crore by the promoter, Info Edge India.
How Did Retail Investors Fare?
Given their extremely cautious approach, retail investors are known to prefer low returns over even a hint of volatility. However, they gained in the primary market during Zomato's IPO. The IPO had set the price band of Rs 72-76. Before the subscription closed on July 16, retail investors showed heavy interest in the IPO, subscribing by 7.5 times. Friday's listing showed the retail investors gained hugely by showing faith in the IPO.
With so many retail investors putting their money into primary markets, the outlook for the companies planning their IPOs later this year promises to be exciting.
Zomato's IPO was the second-largest since Coal India share sale (Rs 15,199.44 crore) in October 2010. The food delivery platform showed boldness by becoming the first Indian start-up to go public, paving the way for others to follow in its footsteps.