[Nitin Bhatia]

If there is a sharp drop in any value. After this drop, if there is a small +ve change in the revised value then this change is a large % change because of the low denominator compared to the initial value. This is called a low base effect.

For example, the long term average turnover of NIFTY is around 36,000 Crore. It dropped sharply to 27,000 Cr i.e. a large % change of 25%. After some time, this avg turnover increased from 27k Cr to 32k Cr & it will be quoted/reported as a sharp increase of 18.5%. However, this increase is because of low base effect i.e. denominator to measure % change decrease from 36k Cr to 27k Cr. Logically, the average turnover (32k Cr) is still 11.11% below the long term avg (36k Cr) so there is no reason to celebrate as the % increase is only because of low base effect.

Technical analysts IGNORE the increase because of the low base effect as i explained in yesterday’s nifty demand and supply analysis.

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