Government's move to scrap old Rs 500 and 1,000 notes will lead to "immediate but temporary contraction" in the mobile phone and PC market in the October- December 2016 quarter, research firm IDC said today.
The ongoing cash crisis is expected to pull down feature phone shipments sharply by 24.6 percent and that of smartphone by 17.5 percent during the quarter compared to the previous three-month period.
Cyclically, consumer purchases see a slowdown post the festival season in India.
"However, this year with the demonetisation process underway, the sequential decline is likely to be higher owing to the cash crunch the country has been facing since the second week of November," IDC said in a statement.
This has already resulted in significant slowdown of demand across PC and mobile devices, not just in offline retail but in online channel as well, where cash-on-delivery (COD) contributes to a substantial portion of the sales, it added.
"Considering the poor sales due to the current cash crunch in the country, earlier estimates for mobile phone has been revised downwards by 4.5 percent. In fourth quarter 2016, feature phone shipments are likely to decline sharply by 24.6 percent and smartphones are expected to see 17.5 percent decline sequentially," IDC India Market Analyst (Client Devices) Jaipal Singh said.
Smartphone and feature phone shipment stood at 32.3 million units and 39.9 million units, respectively in the July-September 2016 quarter.
"Although the early indications of October shipments were healthy, due to relatively poor sales in November, the inventory in channel is piling up which could take some time to liquidate as the cash deficit reduces," he said.
However, this is expected to be a temporary impact on the market as shipments are likely to revive to normal run-rate and channel inventory health to improve by second half of next quarter, he added.
The impact of the demonetisation drive is seen to be more prominent in tier III and beyond cities, where small retail shops transact more in cash and penetration of digital payments is yet to reach the levels seen in bigger cities.
"To tackle the after-effects of demonetisation, distributors are increasing the credit cycle to retailers.
Also, both retailers and brands have started offering more lucrative offers to try to offset the sluggish demand from cash crunch-hit consumers," IDC India Senior Market Analyst Upasana Joshi said.
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