Put-Call Ratio (PCR) – How Reliable Is It in Indian Markets?

The Put-Call Ratio (PCR) is one of the most important indicators in the Indian derivatives market. Many traders get it wrong when they talk about PCR on TV, Telegram channels, and trading dashboards. They don't know what it really means, when it works, and when it doesn't work at all.

This article explains PCR from the ground up, shows how it works in Indian markets, and answers the main question:

Can you trust PCR to trade NIFTY and BANK NIFTY?

1. What does the Put-Call Ratio (PCR) mean?

Basic Definition

The Put-Call Ratio (PCR) shows how many Put options there are compared to Call options.

PCR = PUT DATA/CALL DATA


The "data" can be:

Open Interest (OI)
Volume of Trade
Two Common Types of PCR in India

Type

Formula

How to Use

PCR based on OI

Put OI ÷ Call OI

How you feel about your position

PCR based on volume

Put Volume ÷ Call Volume

Sentiment during the day

For Indian markets, OI-based PCR is more reliable.

2. How to Understand PCR Values

Standard Interpretation

Value of PCR

Feelings in the Market

Less than 0.7

Bearish

0.7–1.0

Not taking sides

1.0 to 1.3

Positive

Over 1.5

Very bullish, but a reversal could happen.

These are not hard and fast rules.

Why High PCR Can Be Good

More writing of puts than calls
Put sellers think the market will stay above support.
Shows trust in downside protection
Why a low PCR can be bad

More Writing Calls
Sellers don't think the market will go up.
Creating a resistance zone
3. PCR in Indian Index Options (NIFTY and BANK NIFTY)

Here are some Indian index options:

Very liquid
Controlled by sellers of options
Institutions had an effect
This is why PCR works better with indices than with stock options.

Example: NIFTY PCR Situation

Data

Value

Total Put OI

1.40 crore

Total Call OI

1.00 crore

PCR

1.40

Interpretation:

Strong Put writing
People in the market are sure about support. The trend is likely to stay the same or get better.
4. When PCR Works Well in Indian Markets

There are only certain situations in which PCR is reliable.

Best Conditions

1. Markets that are stuck in a range
2. India VIX is stable or going down
3. Areas where writing options is strong
4. When OI change and price action are added together

When markets aren't moving too quickly, PCR works best.

5. When PCR Goes Badly

Markets that are popular right now

PCR can stay high for weeks during strong uptrends.
In strong downtrends, PCR can stay low for a long time.
A lot of traders short the market just because PCR is "too high," and they get stuck.

Markets Driven by Events

Money
Policy of the RBI
Results of the election
News from around the world
During these kinds of events:

OI builds for protection, but PCR gives false signals.
Sudden Unwinding

A lot of heavy Put or Call unwinding can change PCR.
The market goes in the opposite direction of the PCR reading.
6. Strike-Wise PCR: A Better Way

Professionals don't look at total PCR; they look at strike-wise OI instead.

For example:

Put OI at its highest point at 22,000
The highest call OI is 22,500.
The market will probably stay between 22,000 and 22,500.

This is better than just looking at the headline PCR numbers.

7. PCR vs. Price Action (The Most Important Rule)

The price always comes first, and the PCR comes second.

Price is going up and PCR is going up.

Good upward trend

Price going up and PCR going down

Weak rally or short covering

Price going down and PCR going up

Put writers in a bind (possible breakdown)

8. PCR and India VIX (A Strong Pair)

PCR

VIX

What it means

High

Low: Strong support, but not much movement

High

Going up

Chance of breaking down

Not very high

Calm bearish setup

Low

Going up

Selling in a panic is likely

Without VIX, PCR is not a full analysis.

9. PCR in stock options is less reliable.

Why:

Not enough money
Unexpected operator action
Distortions in physical settlement
Hedging by promoters and institutions: PCR works best for indices, not for individual stocks.

10. Common PCR Myths (Indian Traders Fall for These)

"PCR above 1.5 means the market must fall" and "PCR alone is enough to predict expiry"
"PCR works the same for stocks and indices"

11. What professional traders do with PCR

They never trade PCR by itself.

They come together:

Price movement
Support and resistance
Change in OI (addition vs. unwinding)
VIX
Global signals
PCR is not a tool for sending signals; it is a way to confirm something.

12. Final Decision: Can you trust PCR in India?

YES, if

Used for indexes
Along with price, OI, and VIX
Used to find out range and sentiment NO, if:

Used as a separate sign
Used in markets that are driven by news or trends
Used without thinking for stock options
PCR doesn't tell you where the market will go; it tells you how traders are positioned.

13. Useful Things to Remember

Focus on PCR based on OI
Don't trade against strong trends.
Keep an eye on changes in PCR, not the actual numbers.
Always check with price action