What should I do with Zomato stock? It corrected 10% yesterday. Do you suggest buying more of Zomato or just exit the stock?

Before we get into what to do with the stock of Zomato, let us first understand why the stock corrected so sharply on Monday. That was because, the anchor investors have a lock in period of 1 month as per SEBI regulations and that expired on 23 August. Once that was over, there were a number of FPIs looking to take profits off the table, since the stock is still quoting way above the issue price. That was the reason for the sharp fall in Zomato stock.

However, I think, there is good reason to buy the stock of Zomato at around Rs.123 levels. Don’t take a very short term view but look at around 2-3 months. You can buy at around Rs.123 for targets of Rs.175-180 in 2-3 months. If you consider that most of the supply of Zomato was eventually absorbed by the domestic institutions, it shows that there is still a substantial appetite for the stock. There is another reason too.

If you look at the latest results of Zomato, the company has shown solid growth in top line revenues and in gross order value or GOV. That is the story to bet on. Zomato is anyways going to take time to build profits and that will only happen eventually. If you look at Amazon in the US, it built a solid value franchise, even as it was hardly making any profits. The e-commerce game is all about domination and winner-take-it-all approach.