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India's demonetization slows down devices market

29 Nov 2016

Indian government’s demonetization move has led to a slow down across many industries - and consumer devices market seems to be no different.

That’s according to IDC, who has found that cash in India is a dominant mode of transaction in the devices market.

The research firm claims that cash enables quick transaction turnaround, providing much needed liquidity for maintaining the demand and supply mix in the devices business.

IDC predicts that the Government’s decision to recall the high-value currency (Rs500 and Rs1000 notes) - which accounts for more than two-third of the cash supply - will lead to immediate but temporary contraction in the devices market in Q4 2016.

Jaipal Singh, market analyst of Client Devices for IDC India, says that when 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%.

“CY Q3 2016 smartphone and feature phone shipments were 32.3 Million and 39.9 Million units respectively.CY Q4 2016 feature phone shipments are likely to decline sharply by 24.6 percent and smartphones are expected to see 17.5 percent decline sequentially,” he explains.

“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,” adds Singh.

“However, we expect this 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 CY Q1 2017.”

IDC predicts that the impact of this is more prominent in Tier 3 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.

Upasana Joshi, senior market Analyst of IDC India, says in order to tackle the after-effects of demonetization, 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. With reduced cash transactions, alternative forms of payment are seeing a surge in demand,” says Joshi.

“This should eventually lead to strengthening of such payment methods in the future.”

The research firm has also found that the tablet PC (Slate + Detachable) market is witnessing a slowdown due to demonetization.

Manish Yadav, associate research manager of Client Devices, confirms that the demonetisation induced cash crunch has impacted consumer’s PC purchase.

“More than half of PC buying from retail and exclusive stores in India is done through cash, hence we are anticipating that demonetisation should further bring down the consumer market by 33 percent in Q4 2016,” says Yadav.

“The lower tier cities are more cash driven and the magnitude of impact will be larger compared to metros.”

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