Overseas institutions — funds, pension funds, insurers — that invest in Indian equities and debt from abroad.
FIIs (also called FPIs, Foreign Portfolio Investors, in current SEBI terminology) are large foreign entities that buy and sell Indian securities. Because they move large sums relative to daily trading volumes, sustained FII buying or selling can meaningfully move the Nifty and the rupee, and FII flow data is watched closely as a sentiment indicator for how global capital views India relative to other emerging markets.
FII flows are sensitive to global factors well beyond India-specific news — US interest rates, dollar strength, and risk appetite across all emerging markets all influence whether foreign money is flowing in or out.
Example
'FII net selling ₹1,200 Cr' means foreign institutions sold roughly ₹1,200 crore more Indian equity than they bought that session — a headwind for the market, all else equal.