Here is a verbatim transcript of the exclusive interview with Rashesh Shah on CNBC-TV18. Also watch the accompanying video.

Q: What’s the verdict of this toing and froing going on the borrowed shorts against the participatory notes? How do you think it will end and what impact do you see happening in the market?

A: Since they haven’t given any fixed deadline on that, it will slow down and anyways the market has corrected so much that not a lot of people would be borrowing for any fresh shorts on an aggregate basis. So, over the next couple of months or maybe by the end of the year all this should get resolved because the government as well the SEBI has very clearly said that they don’t want this to continue. So, implicitly by December 31 people will just square up the outstanding shorts which are there and this market will go away but the large part of the market decline has already happened.

Q: There is so much crossfire; do you think it’s possible that a number of institutions are just privately deciding to wind up existing positions as well not taking a chance?

A: A lot of the hedge funds and others who either have positions or given the market volatility, a lot of the smarter investors are just saying to liquidate everything and go back and hold cash until the end of the year and come back to play in the new year. At the global level, this has been an unprecedented volatility. Even in India between September and October, the market has corrected close to about 40% in two months which has been a very large correction and especially if one adds the rupee also, for the foreigners it has been a large hit. So people just want to go away and hope that this huge market volatility will end in the next three–four weeks.

Q: What do you see happening over the next few quarters on the fee and revenue commission side?

A: Brokerage, asset management, and even banking are correlated to activities in the capital markets like even on the broking side the market volumes are down by 18% to 20% but the stock prices are down. Since the brokerage is also in value terms, you are automatically linked to that and same thing happens with asset management when the asset management stock values come down the fees also come down. So, there is a correlation with the market activity as a whole and the market activity by our estimates. IPOs are not there and in our estimates, the IPOs and private equity M&A deals have been slowing down because of huge market move and market up and downs. So on an average; we think capital market activity has fallen by 35% or so. We are happy that we are able to keep up with that and other activities like interest income etc and that is the reason you need to have some diversified sources of revenue so that you can even handle these activities going up and down.

Q: How far do you think the market is from its coma stage where it stops falling and just doesn’t do anything for a long while as after the losses people have taken, do you think we still have a long way to fall before we arrive at that stage or we are somewhere near?

A: All experience says that we should be getting close to the end. By our estimates, maybe another USD 3 billion to USD 4 billion of FII selling is still remaining from now till the end of the year. They are selling because I was here earlier, I had said they are facing redemptions that there is a liquidity need and over the years we have seen that when there is a liquidity need either prices or valuations, they don’t stand in the way but all history and all experience tells you that we are getting close to the end but the two arguments on the market are that is this going to be a “V” and are we going to come back very sharply or is this going to be a long “U” kind of a pattern, staying around this index and slowly grind and crawl our way back up. Our hypothesis is that it’s going to be more like a “U”. So we are going to have a sideways market and actually the way it is going, a lot of investors will not be unhappy with the sideways market if it goes on for a couple of months and then slowly crawls back up again.

We are back in 2005; a lot of stocks are trading at same levels as they were in 2004 and 2005. About three-four years of growth has got eroded away and valuations are fairly attractive but in India, investors will come back when we see growth again and the Indian market has always been a growth market. So very often investors have not come into the market because stocks are cheap and they have come back to the market because stocks are attractively priced but there is growth expected. I think it will take another five-six months for confidence in growth to come back. So all of us will have to wait for that but India growth will come back. It won’t be an “L” but it will be a “U” or a long “U” but hopefully it will be up again maybe a couple of years down the line.

Q: Just one word on a couple of these front liners or heavyweights, the kind of selling pressure we have seen there, are you hearing or seeing from the clients that it has become more and more specific to the front lines because they are more liquid, easier to sell and a lot of sellers will be top heavy in the midcaps which were bleeding up until now?

A: A lot of frontlines are also a safe haven. So when the early selling happened, people got out of the smallcaps and midcaps, which were the real growth stories and since growth started going away, whatever little bit was remaining stayed into the heavyweights. Now, when we are seeing liquidation for getting into cash and it’s not the hedge funds you are selling, a lot of the long only funds because this can be sold and these are the ones they can have now. So, they have to sell this now and usually my experience has been that when all this happens and when they sell good quality stocks is when you are getting towards the end of the capitulation phase in a sense.

Q: What’s going on with margin funding at Edelweiss and have you had any reason to sell any collateral stock over the last one quarter or so, stocks which were given to you were collateral?

A: Our margin funding is a very small book. It’s about Rs 25 crore to Rs 30 core on the margin front because we are not a retail brokerage house. We have a few HNI clients but actually most of the retail HNI clients are also not using margin funding very aggressively off late because after 8-9 months a huge part of the margin funding happens when markets are good because people want to borrow money to buy stocks and after 8-9 months of constant erosion in the markets, a lot of people don’t want to pay interest and hold stocks which are anyways going down. So what we saw at the start of the year for all margin books is now not there because a lot of the books have been scaled down automatically.