Sandeep Sehgal of Sequoia Capital likes IT Stocks - Moneycontrol.com

Sandeep Singhal, Joint Managing Director, Sequoia Capital states that they are very bullish on the technology sector and are making several investments in that space. They are positive on that space for the next three to five years.

He adds that they have also invested a lot in the BPO space. Sequoia Capital sees a lot of positive forces coming together over the next few years in that space. They are also positive on the hotel sector.

Singhal adds that in their portfolio, they have close to thirty companies like Café Coffee Day, Applabs Testing Services Business, Mauj, Nazara and Dr Lal PathLabs. They are broadbased investors.

Excerpts from CNBC-TV18's exclusive interview with Sandeep Singhal:

Q: What is your sense,are things okay for technology as a sector or are there any kind of red flags blowing for you?

A: We define technology probably a little bit broader than what the market defines. For us, the IT sector, the BPO sector combined with telecom as well as Internet and other interesting technologies and so on so forth, all of it is a part of technology.

I think starting with the basic sectors of IT, BPO and telecom, we are very bullish, as you can see from our portfolio, we are making several investments in those spaces, both at early as well as at midstage. But we are also bullish about sectors beyond that, which are tomorrow’s technology sectors. So overall our view tends to be a three-five years view and on that, we are very positive.

Q: On a long-term frame, are you seeing anything changing by way of long-term demand or appetite for our market and our services?

A: If we look back at our history when we started out investing in this market, about seven odd years ago, most of our technology sector investments came from offshore companies, across border companies, where the customers were across the border and we were serving them from India.

What has changed for us over the last two-three years is that, while we see that wave continuing for several more years, the wave of technology companies focused on domestic market who serve the domestic market and then go to other emerging markets, similar to India, that wave has gotten added.

So we see the cross-border wave going on for several more years, but at the same time a longer domestic market led, emerging market type theme is coming into play.

Q: How is the whole BPO story playing out for you, because you have got an investment in Firstsource and we have had a few BPO listings off late, is that sector fine because in the last couple of years, it has been dogged with issues of underpricing, lower realizations, how do those issues stand up today?

A: I think BPO is a sector where we have invested a lot, apart from Firstsource, which is of those first investments in the country, there are also ten other companies in various sectors, in pharmaceuticals, mortgage services and so on.

So I think what happened with BPOs when it started out was that everybody in India believed that because they were in business they could be successful in BPO and there was far too many market entries. There was some confusion for a few years but if you look at the last two-three years, focused players who bring significant strength to the sector are now gaining momentum.

So we believe that over the next four years, we are going to see people and management teams focused on the sector. This is definitely a sector where we are seeing a lot of positive forces coming together over the next few years.

Q: Have you looked at those stocks that have listed today?

A: No, we have not, we are actually private investors, by and large, and tend to almost invest in companies where our view is three-five years.

Q: Telecom, what do you think of valuations in this sector, since you own Idea, generally the kind of valuations and forward valuations at most of these telecom companies?

A: We see several years of strong growth in the sector and broadening in many different ways, that the west is just catching up with. So we are actually pretty much at peace with several years of growth backing these companies. And we view our investments with the same lens.

Q: How closely do you track taxation changes because there were a lot of concerns with MAT and ESOPs when you approach a strategic investor to sell some of your stake, how worried are they about stories like that?

A: The truth of the situation is that based on the economic environment and the policy framework, government will keep changing and tinkering with small things here and there and for us, we do not worry about those situations because of our holding situations, which are much longer but investors with a shorter-term horizon tend to have significant impact on their positions.

I would probably not be the most qualified to answer that but if we were looking to go, sell our positions to investors who are looking at the next period earnings of the companies, they would definitely consider that in their framework.

Q: You have got an investment in a hotel company as well, Royal Orchid, you like that space?

A: If you look at our portfolio, we have close to thirty companies, companies like Café Coffee Day, Applabs Testing Services Business, Mauj, Nazara and Dr Lal PathLabs. We are actually pretty broadbased investors, we are investing behind themes of broadening and deepening of consumer spending in India as well as business spending but in that same theme, we believe that the hotel sector and the demand supply and all of that and we know that for several years, we can keep building but we will not be able to catch up. So that is what makes us positive.