Smartphone shipment in the country remained almost flat at 25.8 million units in the October-December 2016 quarter compared to the year-ago period, impacted by demonetisation and seasonal slowdown after festive sales, research firm IDC said.
Compared to the July-September 2016 period, shipment in the said quarter declined sharply by 20.3 percent.
"In CY Q42016, smartphone shipments clocked 25.8 million units, registering similar volumes as that of CY Q42015...This is mainly due to a seasonal decline after an all-time high festival quarter and demonetization in the month of November, which led to relatively lower consumer sales in November and December," IDC said.
Online sales of smartphones was at 31.2 percent in the fourth quarter with Xiaomi and Lenovo accounting for more than half the channel's volume.
For the full year of 2016, smartphone shipment stood at 109.1 million units, up by 5.2 percent over the previous year.
"This is relatively lower than expected smartphone shipments for India owing to sluggish first half and demonetisation at the end of year," IDC Senior Market Analyst, Client Devices Karthik J said.
IDC expects 2017 to be a test of survival for many vendors as they struggle to survive in this extremely competitive smartphone market, possibly leading to consolidation.
"The feature phone segment is likely to contribute the majority of mobile phone shipments in 2017; the migration to smartphones is expected to further slow down due to the introduction of low-cost 4G feature phones and its continued relevance to its sizeable target consumer," IDC Senior Research Manager, Client Devices, Navkendar Singh said.
However, replacement demand would drive most of the smartphone shipments in 2017, he added. Feature phone to smartphone migration has slowed down as prices of smartphones are still quite high for a feature phone user, he added.
"Also, ease of use, long battery life and durability of feature phones continue to be relevant for large number of users of this category," Karthik said.
In the smartphone market, the share of China-based vendors touched a whopping 46 percent in the fourth quarter, as their shipments doubled over the same period last year.
On the other hand, the share of homegrown vendors further slipped to 19 percent.
"This is first time when none of the homegrown vendors were able to make their position in top 5. The decision of sticking with a 3G-heavy portfolio and prioritising the price game over product experience is working against the dominance of homegrown vendors," IDC India Market Analyst, Client Devices, Jaipal Singh said.
Also, the trouble is likely to aggravate for homegrown vendors as China-based vendors have now entered the high volume feature phone market, which has traditionally been dominated by the homegrown vendors, he added.
Feature phones remain the dominant category in the total mobile phone market, with annual shipments of 136.1 million units.
The category declined by only 9.4 percent in 2016 as compared to 16.2 percent in 2015.