Fall in value of rupee, high inflation could hit festive season demand for smartphones

The sharp rise in the value of the rupee against the dollar and high inflation could hit festive season demand for smartphone makers. Market trackers are already cutting annual shipment estimates for smartphones, fearing a weaker-than-usual festive season, which accounts for a third of annual sales.

Counterpoint Research is now estimating its annual forecast to be 175-177 million units from its initial 181 million estimate. IDC India is also considering a downward revision from its initial 5% annual growth estimates.

"Smartphone makers will have to pass on the increased costs to end consumers at a time when consumers are holding on to their purchases. It makes the upcoming festive season sales even more difficult for the brands," said Tarun Pathak, research director at Counterpoint Research.


The pessimism stems from a weak rupee against the dollar, which is impacting the cost of production of smartphones. Despite a strong manufacturing base in India, most of the components are sourced from other countries, traded in dollars.




Pathak said that as a result, brands may delay the sourcing of components for a while, adding that the rupee downfall may ease by mid-August to September. This could then lead to delayed launches, or brands focusing more on the so-called ‘hero’ launches to have enough brand recall during the festive sales.

The recent inclusion of essential commodities like pre-packed flour, paneer and curd under the GST regime have also added to the worries of smartphone brands.

"If my monthly budget goes up on essentials, I don't have much money to dispose of on other things. While smartphones are essential today, the upgrades are dependent on an individual's budget and how much you can shell out additionally," said Faisal Kawoosa, co-founder at TechArc. “So, while earlier some would upgrade their phones every year, that might get pinched due to the price hikes in essential commodities.”

Smartphone shipments in India have been declining month over month, with demand hurt mainly due to inflation. Shipments contracted 9.2% month-on-month in May as brands struggled to clear off inventories, both in the offline and online channels.

Besides inflation, analysts say the demand for smartphones is weaker also due to fewer launches in the budget segment, which accounts for the highest volumes in sales in the price-conscious India market. Brands have moved up the price ladder this year, pushing the average selling price to Rs 16,000, due to supply chain constraints, a shortage of 4G chips, and high logistics costs.

Some experts say the smartphone makers can’t afford to hike rates across all segments for the fear of hitting demand.

"Brands operating in the premium and mid-tier segment have the cushion to offset the increased costs by hiking prices in the premium segment. But they will not have much wiggle room in the under-Rs 30,000 segment," said Kawoosa.

Abhilash Kumar, senior analyst at Strategy Analytics, added that brands may have no choice but to absorb the increased costs for now to prevent any further impact on the demand.

"They may take away the existing discounts on the devices or even if the hike happens, it will be very nominal (within 1%)," said Kumar.