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The Bombay Stock Exchange (BSE) has taken an unprecedented step by postponing the listing of Trafiksol ITS Technologies Ltd., a small and medium enterprise (SME), whose initial public offering (IPO) concluded recently. The decision to defer the listing came after the BSE raised certain 'queries' about the company's operations that remain unresolved. The IPO of Trafiksol ITS Technologies opened on September 10 and closed on September 12, with the company's shares slated to be listed on the BSE SME platform on September 17. However, in a notice to market participants on Tuesday, the BSE announced the postponement of the listing, stating that it was due to unresolved queries from the issuer. While the BSE refrained from providing specific details about these queries, the decision signals a heightened level of scrutiny applied to SME IPOs.
The Noida, Uttar Pradesh-based company, Trafiksol ITS Technologies, specializes in providing solutions for intelligent transportation systems and automation. This includes software development, consultancy, and supply services. The company's IPO, which aimed to raise around Rs 45 crore, attracted significant interest. The price band for the issue was set between Rs 66 and Rs 70 per share. The issue was oversubscribed by a remarkable 321.51 times, with the retail portion oversubscribed 317.74 times and the non-institutional investors quota oversubscribed 517.50 times. This strong demand indicates potential investor confidence in the company's future prospects.
The BSE's action against Trafiksol ITS Technologies is not an isolated incident. It aligns with the concerns raised by the Securities and Exchange Board of India (SEBI) regarding certain SME companies and their promoters resorting to practices that paint an unrealistically positive picture of their operations. SEBI has highlighted instances where companies make public announcements that portray their performance in a favorable light, often followed by corporate actions such as bonus issues, stock splits, and preferential allotments. According to SEBI, these actions are designed to generate positive sentiment among investors, encouraging them to purchase securities. This, in turn, provides an opportunity for promoters to offload their holdings at inflated prices. While SEBI does not directly regulate SME IPOs, this responsibility falls on the NSE and BSE.
The listing of SMEs on NSE and BSE has witnessed a period of irrational exuberance, with numerous IPOs getting oversubscribed by significant margins, ranging from 500 to 700 times. This trend reflects a surge in investor interest in SME companies, but it also raises concerns about potential market manipulation. The annual number of listings on SME platforms through IPOs has quadrupled over the past five years, increasing from 46 in 2019-20 to 196 in FY2024. Similarly, the amount of funds raised through IPOs has soared 12-fold over the same period, rising from Rs 495 crore to Rs 6,096 crore. This growth has contributed to a market capitalization of SME companies reaching Rs 2 lakh crore.
The BSE's decision to defer the listing of Trafiksol ITS Technologies underscores a growing focus on ensuring transparency and investor protection within the SME sector. The deferral highlights the importance of thorough due diligence and scrutiny to prevent instances of misleading market practices. The incident serves as a reminder that while the SME sector offers significant opportunities, investors need to exercise caution and conduct their own research before making any investment decisions. As the SME market continues to expand, regulatory bodies like SEBI and stock exchanges play a crucial role in safeguarding the interests of investors and promoting market integrity.
Source: BSE defers listing of SME Trafiksol ITS Technologies due to unresolved ‘queries’