The much-predicted upmove took place, yet the undertone remains cautious. As benchmark indices posted impressive gains for the second consecutive day, marketmen are still sceptical as to whether the rally is sustainable. Fresh buying is absent and the intermittent spikes can be attributed to short-covering, they say.

Foreign institutional investors continue to sit on the sidelines, expecting a further fall in valuations. Further, the domestic and global macro-economic factors do not look convincing enough for the markets to register a sustained rise.

"There is hardly any fresh buying in the market," said SBICAP Securities head institutional sales Jignesh Desai. "Short-covering was visible in all sectors, especially real estate. The impressive advance tax numbers also lifted investor sentiment," he added.

However, there is a section of market players who feel that the markets may have bottomed out, albeit in the short term. According to market talk, many large operators have covered a substantial portion of their short positions on Nifty futures in the last couple of days. In other words, the number of investors betting on a further fall in the indices in the near term has dipped.

Incidentally, short-covering was said to be one of the key reasons for Tuesdays rise in the benchmark indices. Additionally, the market got a breather with oil prices (Nymex crude) cooling off marginally to around $133 per barrel.

While the 30-share Sensex gained 301.08 points to close at 15,696.90, the broader S&P CNX Nifty settled the day at 4,653, up 80.50 points. The market breadth was also quite strong with more than 1,800 stocks gaining ground on the BSE.

According to dealers, domestic fund houses were seen buying actively on Tuesday, especially in banking counters like SBI, Axis Bank and HDFC Bank, among others. Mutual funds are believed to be sitting on cash amounting to nearly $5 billion.

Interestingly, even though mutual funds have started buying into select counters, marketmen feel it is too early to call it a reversal of trends as FIIs the main drivers of any bull run are still sitting on the fence.

According to the Securities and Exchange Board of India (Sebi), FIIs have been net sellers at more than $5.5 billion in the current calendar year. Meanwhile, provisional figures showed that FIIs turned net buyers after six days at Rs 142.36 crore on Tuesday.

Many entities like SBI, ICICI Bank, Reliance Industries, Bajaj Auto and HDFC have recorded a higher advance tax outgo compared to the corresponding period last year providing some relief to persons worried about the fiscal health of India Inc.

However, the situation going forward would depend on credit offtake, choppy markets and impact of higher interest rates and oil prices.