Rashesh Shah, MD and CEO, Edelweiss Capital, said it is too early to say if the markets are out of the woods yet. “The situation is not as bad as last week but headwinds remain. The markets seem to be in a consolidation phase. The near-term trend will depend on quarterly results and global cues,” he told CNBC-TV18.

He feels the markets are past the gloom-doom scenario. “Some shorts are being cut.”

According to Shah, a few more weeks of consolidation is needed for confidence to return. “But for that the US credit situation needs to improve.”

Excerpts from the exclusive interview with Rashesh Shah:

Q: Are we out of the woods or still it too early to say?

A: Yes, it is too early to say. Last week, we went very close to the cliff and everybody looked down and there was the gloom-doom all over and we have struck back from there. Things don’t look as bad as they appear about a week ago. Still they are headwinds and concerns are still there at a global level and at an India level. So is it all over? I think we will only know afterwards but at the moment there is a sense of sigh of relief and saying okay it is not all that bad. I think we are consolidating now.

Q: What's your sense? Do you think we can build on this rally and go somewhat higher or at best we will have to be resigned to staying within a range for the moment?

A: We will have to stay within a range until the April results are out. The next big event is going to be the corporate earnings results in India and there has been some talk of earnings slowing down or the margin contraction happening and everybody is waiting to watch on what happens in that.

So another three-four weeks, the market will just wait and watch. A lot of the institutional investors, HNI and retail will also wait on the sidelines for at least 3-4 weeks. May be everybody will come in with a little bit but the idea is to wait and watch and allow the market to stabilise.

Q: Last couple of days we have seen some FII inflows after a long time and some short covering from that side as well. Are you beginning to sense some more optimism or too early to read too much into the data of just a few days?

A: I don’t think there is a huge amount of optimism. The ‘gloom doom’ has gone away. So it appears that things are not as bad as they appear or they appeared a week ago and people are just stepping back and saying okay, now may be if some hedge funds were short, they were cutting short. There is a little bit of stock buying happening. But most people want to hold back. Confidence will take some time to come back. What we have seen in the last three months is that one doesn’t have this kind of upheaval in global markets and Indian markets and everybody and everything comes back very fast. It should absorb itself and a few more weeks of this and some confidence on the clean up in the US happening will start to get confidence back but until then, we should be in a sideways market up and down.

Q: What would you say about the retail and HNI sentiment and mood right now, is confidence returning slowly or are we very far away from that?

A: The confidence is not as high it was obviously about three-months ago. It is coming back little bit. The good news is that a lot of retail investors and HNIs have been investing through the mutual fund and insurance company. Increasingly, they after the fall in January, a lot of the HNI retail investors are finding it more optimal to invest through the mutual funds and insurance companies then to invest on their own. So we will see a cash inflows into the insurance companies and the mutual fund which has been happening and they haven’t been seeing redemptions of huge amount and the entry if HNI and retail for the next few months will be indirectly rather than on their own.

Q: What's your sense of which segment of the market can be more constructive over the next few weeks - largecaps or midcaps given what's gone on and how brutally some of these midcaps have got hit?

A: It is going to be very stock specific. International investors, the long only guys will mainly go towards the more liquid higher market cap ones. Some of the Indian investors - insurance companies and others might go towards the midcaps. High quality midcaps were earnings story is there and management quality is very good. But on the whole, it is going to be very stock specific and if you are in a range bound market, we will see strong opportunities to buy and a few investors will come in as the confidence comes back. So we should not see any huge uptick for any group as a whole. It is going to be very stock selective.