In India’s options market, the Put-Call Ratio (PCR) is widely used as a contrarian indicator of market sentiment. It is calculated using open interest (OI) or traded volume in put and call options. According to data from the National Stock Exchange (NSE), the Nifty OI-based PCR stood at approximately 0.83, with Put OI at 39,57,105 contracts and Call OI at 47,50,772 contracts.
A PCR of 0.83 suggests that call open interest exceeds put open interest, indicating a mildly bullish bias, although the market remains volatile. When divergences between retail and institutional positioning are analysed alongside PCR trends, a deeper layer of sentiment emerges, one shaped not only by price action but also by SEBI regulations and broader macroeconomic developments.
Understanding PCR Mechanics
The Put-Call Ratio (PCR) measures the total outstanding put open interest divided by the total outstanding call open interest.
A PCR above 1 generally indicates a bearish bias (more puts than calls).
A PCR below 1 suggests a bullish bias (more calls than puts).
However, extreme readings are often interpreted contrarily. For example, a very high PCR may signal excessive pessimism and potential bullish reversal, as market participants hedge aggressively.
Currently:
OI-based PCR for Nifty: 0.83
Change in Open Interest (COI) PCR: 0.65
Volume PCR: ~0.86
The COI PCR at 0.65 suggests relatively higher call OI addition versus puts during the session. A negative COI strength of around -21% indicates pressure building on the call side. Meanwhile, the lower volume PCR reflects stronger call trading activity.
Retail traders often chase directional momentum through call buying, whereas institutions typically use options for structured hedging and portfolio protection.
With derivatives turnover increasingly dominated by index options, recent SEBI margin reforms and structural changes in weekly expiries have altered participation patterns. Reports indicate a noticeable decline in retail activity following higher margin requirements and regulatory tightening, making PCR analysis even more relevant in interpreting present market conditions.
Retail Trader Dynamics
In FY25, retail investors accounted for the overwhelming majority of individual participants in the derivatives segment. According to SEBI’s study on F&O trading behaviour, over 90% of individual traders incurred net losses in the derivatives segment.
Retail behaviour often amplifies PCR extremes. A low PCR (below 0.8) during rallies typically reflects aggressive call buying. Following SEBI’s stricter framework, such as upfront premium collection and tighter risk management norms, retail turnover in index options moderated, tempering speculative intensity.
SEBI’s July 2025 analysis also indicated that retail investors remain active in weekly index options. However, the number of unique retail participants reportedly declined by roughly 20% after regulatory changes, reducing excessive leverage and helping stabilise average PCR levels.
FIIs witnessed cumulative equity outflows through much of 2025, though selective buying returned in early 2026. For example, on 17 February 2026, FIIs recorded net F&O purchases of approximately Rs 995 crore, while DIIs recorded net purchases of Rs 187 crore. This coincided with relatively lower PCR levels, suggesting institutions may have been building protective call or hedge positions.
DIIs continued to support the cash market, with net equity purchases of around Rs 11,630 crore in February (month-to-date). Institutional put writing during dips often provides downside support, keeping aggregate PCR broadly within the 0.8–1.0 range.
An increase in call open interest (for example, an addition of approximately 19,84,245 contracts during the session) appears more structured compared to retail-driven volume spikes, indicating deliberate institutional positioning.
Participant Comparison Snapshot
Participant
Typical PCR Bias
Feb 2026 Sentiment Indicator
Key Driver
Retail
Low (<0.8) during rallies
Call-heavy at Nifty 0.83 OI PCR
Speculation, post-SEBI caution
FIIs
Balanced (0.9-1.1) hedging
Net F&O buy Rs 995cr (17 Feb)
Global flows, outflows reversal
DIIs
Put writing (>1 support)
Net equity buy Rs 11,630cr (MTD)
Domestic liquidity support
Recent PCR Shifts Observed
Mid-February 2026 NSE intraday data showed Nifty’s PCR moving between 0.84 (9:30 AM) and 1.15 (10:15 AM), before settling near 0.83. The COI PCR at 0.65 suggested stronger call additions during the session.
The shift from PCR above 1 (bearish bias) to below 0.9 (bullish bias) aligned with FII net buying on 17 February, when Nifty traded in the 26,161–26,258 range.
During February, FII gross F&O purchases were approximately Rs 1,93,448 crore versus Rs 1,94,799 crore in sales, indicating a largely neutral net position. DIIs remained supportive in the cash segment.
Meanwhile, broader indices showed variation in PCR trends. A lower PCR reading in select large-cap stocks suggested call-dominated positioning, indicating expectations of near-term upside or hedging adjustments.
Retail vs Institutional Divergence
Retail optimism reflected in lower PCR readings has coincided with Nifty trading above 26,200 levels. However, the historically high retail loss ratio led SEBI to introduce tighter safeguards to curb excessive risk-taking.
Institutional behaviour tends to be contrarian at extremes. For example, FII net selling of Rs 7,395 crore on 13 February coincided with a temporary spike in PCR, suggesting protective positioning amid global volatility.
Post-2025 regulatory changes reduced high-frequency retail participation, increasing the relative influence of institutional flows on overall PCR stability. DIIs have often offset FII caution, preventing extreme sentiment swings.
SEBI’s regulatory overhaul, including revised margin frameworks, tighter monitoring of leveraged positions, and structural adjustments to options contracts, has meaningfully altered participation patterns.
Reports suggest that retail activity in index options declined by around 20% after these measures. This has gradually shifted PCR influence toward institutional positioning.
With improving macro indicators and expectations of stronger FII flows in 2026, PCR readings between 0.80 and 1.0 reflect relatively balanced sentiment rather than speculative extremes.
Implications for Market Outlook
Current PCR trends indicate a moderate bullish bias, with Nifty’s OI-based PCR near 0.83 suggesting upside potential, provided put support remains intact.
However, excessive retail call build-up without institutional confirmation could increase vulnerability to pullbacks. Institutional accumulation, such as the recent Rs 995 crore F&O buying, strengthens the bullish case if sustained.
Overall, PCR remains a valuable sentiment gauge. In an environment of global uncertainty and evolving regulatory norms, the interaction between retail enthusiasm and institutional prudence will continue to determine whether Indian markets sustain momentum or face corrective phases.
*The article is for information purposes only. This is not investment advice.
