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Foreign institutional investors who have opened their purse liberally in Indian markets in recent months have been aggressively hedging, or fencing, their equity portfolio in derivatives markets ahead of the Lok Sabha election results on Friday.

FIIs have sold futures and options (F&O) worth nearly Rs 10,250 crore so far in May, while buying equities worth Rs 8,255 crore in the cash market during the same period, just in case the poll results do not play out according to the expected script.

Analysts say foreign investors aren't all that excited about exit poll results, which have given a thumping majority to the Narendra Modi-led BJP and its allies. They are also sceptical about the possibility of NDA trying to shop for regional parties to form the next government at the Centre. "Exit polls have a mixed track record in terms of accuracy versus official result," said Siddhartha Sanyal, chief India economist at Barclays Capital Markets in a note to clients.

Foreign investors have sold index options worth Rs 7,180 crore in May so far to hedge their portfolio. They have also sold stock futures worth Rs 2,826 crore. "FIIs were seen hedging their equity portfolio in derivatives market as many don't go by exit polls blindly," Siddharth Bhamre, head - equity derivatives and technicals at Angel Broking, said. "Nifty can rally another 500 points if the NDA wins clear majority, but markets are unlikely to fall sharply unless there is a shocker in the election results," he said.

Foreign institutional investors have increased open interest, or outstanding market position in index options, to Rs 78,087 crore as on May 14, from Rs 43,766 crore on May 2, while remaining net sellers in index options for the month, which suggest aggressive hedging, say analysts.

FIIs have this year so far invested overRs 40,000 crore in Indian equity markets. "The increase in open interest and they being net sellers in options suggest FIIs have created short positions in the market to hedge their long portfolio," said Chetan Jain, derivative analyst at Anand Rathi. "FIIs initially sold index put options when Nifty was around 6800 in the May series, but now they have started selling index call options as markets have moved higher."

The maximum open interest addition in Nifty put options on Thursday, a day ahead of election results, were seen at 6400 strike with 54-lakh shares, followed by 6500 strike with 51-lakh shares. The volatility index, or India Vix, has also surged 13.40% to 36.76%, hinting at uncertainty ahead of the final election outcome.

"Foreign institutional investors as part of the trading strategy also sold deep out-of-the money call and put options after the exit polls," said Jitendra Panda, managing director and chief executive officer of Peerless Securities.

FIIs have sold Nifty call options of 7500, 7600, and higher strikes, while within Nifty put options, they have 6600, 6400, 6500, and lower strikes as a section of foreign investors believe the final election results won't result in huge upside or downside in the market, like during the 2004 and 2009 elections, say analysts.

"Indian markets have risen 6.6% in May so far, suggesting the markets are getting around to discounting a stable government at the Centre," said Jitendra Sriram, equity strategist and head of research at HSBC Securities. "However, any slip-up on this could cause nervousness in the markets."

Analysts are advising investors to go for ratio spread trading strategy where one can buy Nifty 7200 strike call option and sell 2 Nifty 7500 strike call options on election results day.