An equity index swap can be hedged, from the perspective of a seller (short), by purchasing index futures. Therefore, if the underlying index rallies, the seller (dealer) will offset the payment on the swap by gains on the futures contracts. However, establishing a perfect hedge would be quite hard using futures as the dealer would have to purchase futures contracts that completely match the payment fixings on the swap.
More practical solutions to a futures-based hedge can be possible using other markets (such as hedging equity index swaps in the cash market).
