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A new corporate earnings season is about to begin. Indian companies will announce their results for the fourth quarter of the previous financial year. Corporate results for the third quarter were impressive despite the immediate effect of demonetisation. Some economists had said that the demand slowdown after demonetisation did not show up in financial statements because companies had been busy pushing their products into distribution channels. Such “channel stuffing” essentially meant that sales were booked even though consumers were not actually buying stuff. Those in the distribution channels did not complain because they could use their cash holdings to pay companies—and the latter, in turn, used the money to pay excise duty to the government.
Fourth-quarter results should be poor in case there was indeed rampant channel stuffing after 8 November. This earnings season will provide a good opportunity to figure out whether consumer demand stayed the course despite demonetisation or whether it had been artificially propped up by pushing production into distribution channels.