A CASE STUDY

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 estimates. 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 has 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.

Bibliography
https://economictimes.indiatimes.com/