India's smartphone market set to cross Rs 2-trillion mark in 2021

Market size shrunk in 2020, but higher volumes and ASP expected to set new benchmarks

Buoyed by renewed surge in the demand for smartphones and rising device costs may push the local smartphone market beyond the record Rs 2-trillion mark in 2021. While disruptions from the Covid-19 pandemic led to the market size shrinking for the first time last year, in 2021, the market is expected to touch unprecedented levels — both in terms of volume and value.

In 2020, the local market recorded a fall in the number of units shipped, as shortage in supply of components and the lockdown brought the market to its knees during the first half of the year.

“Stay-at-home mandates, remote learning, travel restrictions, and manufacturing shutdowns led to a sluggish first half (shipments declined 26 per cent year-on-year, or YoY),” observed the International Data Corporation (IDC).

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets.

Total shipments recorded its first fall — declining 2 per cent to 150 million units, from 153 million in 2019.

However, it is the fall in the average selling price (ASP) of handsets that impacted the market size more than the fall in volume numbers.

According to estimates, the ASP for smartphones last year came down 5 per cent YoY to Rs 11,200. Since their introduction in the market in 2010, ASP for smartphones before 2020 have never recorded a fall in the Indian market.

Resultantly, in 2020, the total market size shrank to Rs 1.68 trillion, from Rs 1.77 trillion in 2019.

According to experts, a poor economic outlook played a key role in this decline.

“Mass-market consumers were less inclined towards upgrading their handsets. Most of the volumes were driven by purchases that were absolutely imperative,” said Navkendar Singh, research director at IDC.

Salary cuts, job losses, and subdued consumer sentiment — a large section of consumers opted for cheaper options that were just enough to serve the purpose. It was a major paradigm shift from the earlier trend where mass-market consumers were driving ASP up, even as they were willing to spend more on smartphones as a lifestyle barometer.

In 2021, however, with a significant jump in ASP and higher volumes, the market is estimated to touch Rs 2 trillion. From its previous high of Rs 11,600 in 2019, the ASP for smartphones is now estimated to breach Rs 12,300.

A clutch of factors is set to push the market up. Since the economy snapped out of the lockdown mode, sales have grown by leaps and bounds. According to analysts, prevailing travel restrictions have rendered an urgent need for devices supporting activities such as entertainment, work from home, and remote learning, resulting in a demand for more devices per household.

While in the September quarter, the shipments grew 17 per cent YoY, in December, it recorded a whopping 21 per cent rise — setting new records for both quarters.

IDC now estimates that in 2021, the smartphone market will grow in high single digits, taking the total shipment beyond the 160-million mark.

Unlike last year, when need-based cheaper options had led the market, this time around it will be “driven majorly by upgrading consumers”, said IDC. This, coupled with the rise in 5G devices across the price range, is expected to boost the average price of smartphones. Despite uncertainty around the launch of 5G services, the shipment of 5G-enabled smartphones crossed 3 million in 2020.

According to Madhav Sheth, vice-president, Realme and chief executive officer, Realme India & Europe, “The handset market will witness a strong supply ecosystem for 5G-ready smartphones in 2021.” The firm is planning to launch 5G devices in the affordable segment.

Nipun Marya, director-brand strategy, Vivo India, said the company will launch 5G devices “across categories at various price points”.

In recent quarters, Chinese device manufacturers have driven the 5G market by rolling out aggressively-priced devices. Flagship launches by market leader Xiaomi at under Rs 20,000 have already brought the war on the doorstep of the affordable segment.

“As more 5G devices enter 2021, the ASP for smartphones is expected to rise. We expect vendors to launch 5G devices at multiple price points, backed by aggressive promotions,” said Upasana Joshi, associate research manager, IDC India.