Samsung’s (005930) global market share surge in the past few years was underpinned by its remarkable success in key emerging markets like India, China and Brazil. The company’s two-pronged strategy of marketing the high-end Galaxy S series heavily while pushing the prices of its cheaper Galaxy models down rapidly caught many of its rivals off guard in 2011 and 2012. But according to a new report, it seems that Samsung may have peaked in certain markets in the summer of 2012.

According to highly respected market research firm GfK, Samsung’s smartphone market share in urban India dropped from 46% in July to 36% in December. Interestingly, big winners during the period where Micromaxx, Karbonn and Lava, three low-end vendors that jacked up their share from 4% to 12%. This surge among Asian budget brands is going to be a major challenge for Samsung in 2013.

One emblem of the Asian budget vendors’ prowess is a brand new Karbonn model called S1 Titanium. It features a 4.5-inch display with pixel density of 245 ppi as well as a 5-megapixel camera equipped with autofocus, an LED flash and geo-tagging capabilities. The price is under 11,000 rupees, far below the 25,000 to 30,000 rupee range of luxury smartphones in India.

Samsung has a solid range of budget smartphones in India, such as the Galaxy Y which costs just 6,000 rupees. But the Galaxy Y’s specs are very modest, including a crude 3-inch display and a 2-megapixel camera.

What vendors such as Mircomaxx and Karbonn have realized is that in order to avoid cannibalizing sales of its Galaxy S and Galaxy Note luxury models, Samsung has underspecced most of its budget smartphones. This leaves a gap for challengers to exploit. One white-hot phone in India right now is the Micromaxx Canvas 2. Trumping even the Karbonn S1, it features a huge display (5 inches) and highly advanced camera technology (8-megapixel camera, dual-LED flash, face detection). Yet it’s still priced under 10,000 rupees.

Samsung is in a bind here. It cannot offer these kinds of specs at these price points without risking cannibalization of its flagship models that retail at around 25,000 rupees. The company basically has to decide whether it wants to give up market share or risk a steep overall ASP slide.

As the Asian budget vendors push deeper into Latin America, Africa and South-East Asian markets, Samsung’s position in the budget smartphone market is already wobbling.