MUMBAI, May 14 (Reuters) - Foreign investors are loading

up on options to hedge their equity portfolio against a slide in

benchmark indices as they worry that Prime Minister Narendra

Modi's party may not achieve the landslide victory predicted by

opinion polls just weeks ago.

The last major poll had estimated that the ruling Bharatiya

Janata Party (BJP) party would win 342 seats, comfortably above

the 272 majority required to return to power.

But a lower turnout so far in India's general elections and

changing political rhetoric have dampened expectations of a

landslide victory for the BJP and its allies.

Votes are set to be counted on June 4.

Foreign investors worried about the election outcome will

resort to buying puts of the Nifty 50 or the Bank Nifty

, which are the most liquid derivatives, said Vineet

Arora, managing director at Dubai-based investment firm NAV

Capital.

They may opt for derivatives on other indexes depending

on their portfolio composition, he said.

Ahead of the results, the net open interest of put options

on Indian indexes held by foreign investors hit the highest

since at least January 2019, according to data complied by

Reuters, based on information provided by the National Stock

Exchange.

The net open interest - the difference between long put

and short put positions - is currently at 2.5 times the daily

year-to-date average.

The Nifty 50 Index last week fell 1.9%, compared to a 1.85%

rally in U.S. equities and a 1% gain in the MSCI Emerging

Markets Index.

On Tuesday, the Nifty 50 was up 0.1% at 22,130.20.

A put option is a derivative contract that investors turn to

protect their equity portfolio from losses.

A buyer of a put option pays a premium and, in turn, earns

the right to sell the underlying at a particular price, called

the strike price.

A pick up in the open interest, an indicator used to

determine the extent of wagers on the contracts, has coincided

with increased foreign investor selling in the cash market.

Foreign investors took out $2 billion from Indian equities

last week, having taken out $1.9 billion in April. They had

bought $4.2 billion in March.

Volatility has risen with the Nifty volatility index

at its highest in one-and-a-half years.

It is "quite possible" that foreign investors are looking at

the price action on the Indian market and deciding to hedge,

said Samir Arora, fund manager at Mumbai-based Helios Capital.

Buying puts is among the easiest way to hedge exposure, he

added.

The highest open interest on puts is at 22,000 and 21,000

strike price for the monthly contract expiring on June 27. Open

interest on weekly contracts is much lower due to limited

volumes.