(Reuters) - Grocery delivery app Instacart's stock fell nearly 5% in premarket trading on Wednesday, on course to join other new stock market entrants in failing to keep up with their strong gains on debut.

Investors had speculated that the series of new listings could potentially revive the IPO market after a near 18-month dry spell, but stocks including chip designer Arm and RayzeBio have traded weaker in a sign of caution amid concerns of inflation and higher interest rates.

Shares of San Francisco-based Instacart ended 12% higher in their Nasdaq debut on Tuesday, failing to hold onto an intraday gain of as much as 43%. The company's initial public offering on Monday had given it a valuation of nearly $9.9 billion.

Enthusiasm for the company will be challenged by its ability to sustain margin expansion and revenue growth while facing elevated food price inflation and increased competition from food delivery providers, Walmart, Amazon, and traditional grocers, said Alex Frederick, senior emerging technology analyst at PitchBook.

Instacart's business has slowed from pandemic highs but is still growing as people stick with their lockdown habits of ordering groceries and essentials online from the comfort of their homes.

A potential headwind would be attracting and retaining new customers, Frederick said, especially older shoppers who tend to prefer the savings and experience of brick-and-mortar grocery stores.

Instacart's listing came almost three years after it kicked off preparations to go public. In August, it announced interest from PepsiCo, which has agreed to buy $175 million in preferred convertible stock.

Instacart has executed well in scaling a formidable ad business which still has plenty of upside ... Instacart's best days should be well in front of it, said Andrew Lipsman, principal analyst at Insider Intelligence.

(Reporting by Savyata Mishra and Niket Nishant in Bengaluru; Editing by Devika Syamnath)