Oversubscription happens when more people want to buy shares in an IPO than what is offered for sale. For instance, if a company provides 1 lakh shares but receives requests for 10 lakh shares, this means it has been oversubscribed by a factor of 10. This demonstrates that there is a strong interest from investors and is often found in companies that are popular or have good reputations and fair prices.

When an IPO is oversubscribed, it shows that investors are more confident and excited about the future of the company. Such high demand might cause the stock to be listed at a higher price on the exchange since buyers are ready to pay extra to get the shares. Yet, not every investor who places a bid will end up with shares, as the limited shares are distributed according to the total bids received.

Oversubscription can also influence how the stock performs after it is listed. A highly oversubscribed IPO can see strong trading activity and an increase in price, fueled by the leftover demand from those who missed out on buying shares during the IPO.