July 18 (Bloomberg) -- Tata Consultancy Services Ltd., India’s largest software services provider, is seeing an end to the decline in demand from its biggest clients, Chief Financial Officer Seturaman Mahalingam said.

“The decline has been arrested,” Mahalingam, whose clients have had budgets cut by as much as 20 percent this year, said in an interview in Mumbai today. “The companies are in a stage where they have been able to justify the minimum program. As the economic climate improves, their intention may be to demand a higher budget.”

Chief Executive Officer Subramanian Ramadorai froze pay, capped hiring and cut costs to beat the recession. An unexpected stability in the volume of billed hours among financial clients also helped Tata Consultancy beat earnings expectations yesterday, joining nearest rival Infosys Technologies Ltd.

Net income rose 23 percent to 15.2 billion rupees ($312 million) in the three months ended June 30. That compared with 13.6 billion rupees, the highest of the 21 estimates compiled by Bloomberg.

Sales rose to 72.1 billion rupees, beating the median analyst estimate of 69.2 billion rupees, after Tata Consultancy won eight large deals, including five from companies in the U.S. Revenue in U.S. dollar terms increased 3.3 percent over the previous quarter.

Tata Consultancy, which provides computer services and back-office support to Citigroup Inc., Volkswagen AG and other customers, said it won a multimillion-dollar order from a specialty retailer in the U.S., where it gets half its sales. The Indian company also signed a multiyear contract with an Australian energy retailer for managing software applications.

“The earlier downcast feeling, that is gone,” Mahalingam said.

Top 10 Clients

The share of revenue from Tata Consultancy’s 10 biggest customers rose to 28 percent in the quarter from 26.9 percent in the preceding three months, the company said in a presentation to analysts that was posted on its Web site.

The proportion of revenue accounted for by sales in the home market rose to 9.1 percent from 8.2 percent in the previous quarter. Tata Consultancy aims to double sales in India to $1 billion in the next three years, Chief Operating Officer Natarajan Chandrasekaran said in April. The company expects to increase sales of business support services to $3 billion annually in five years, he said today.

Infosys last week reported profit for the quarter ended June 30 rose 18 percent to 15.3 billion rupees, beating analysts’ estimates, after it trimmed costs and won orders, including two from Fortune 500 companies.

‘Watchful of the Situation’

“The global economy across countries continues to be weak,” Ramadorai said yesterday. “We are certainly watchful of the situation and we don’t rule out the fact that more surprises can be expected.”

Chrysler LLC, which gave Tata Consultancy an order earlier this year, filed for bankruptcy April 30. Citigroup has received a $52 billion government bailout and financial firms worldwide have shed more than 328,000 jobs since the financial crisis started, according to data compiled by Bloomberg.

“IT services firms are mainly catering to global companies in America, mainly U.S. banks, which of course are suffering from the downturn in the financial industry,” Gunnar Pahlson, who oversees $500 million in emerging markets stocks at Sweden’s HQ Fonder AB, said by phone from Stockholm before the results were reported. “I don’t think you should expect a recovery in order flow this year. Maybe next year.”

The U.S. information-technology market will shrink by 5 percent in 2009 and global IT spending will decline 11 percent, Cambridge, Massachusetts-based Forrester Research Inc. forecast last month. Forrester expects a “strong technology recovery” later this year and in 2010.

IBM, Intel

International Business Machines Corp., the world’s biggest computer-services provider, July 16 reported second-quarter earnings that topped estimates and raised its full-year forecast. Intel Corp., the world’s biggest chipmaker, also beat estimates with its quarterly results, which were announced on July 14.

The U.S. economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession, a Bloomberg News survey of economists showed last week.

Growth will average 1.5 percent in the July-to-December period, compared with last month’s 1.2 percent projection, according to the median of 57 forecasts in the survey.

Tata Consultancy is seeing some signs of improvement in its biggest market and among financial clients, Chandrasekaran said yesterday.

“We’ve seen growth in the U.S., we’ve seen growth in the financial services sector,” he told reporters at the briefing. “The deal pipeline is healthy and distributed across industries. Still, we’re cautious about manufacturing and high-tech.”

Wipro Ltd., India’s third-largest computer-services company, will report first-quarter earnings on July 22.

To contact the reporter on this story: Harichandan Arakali in Mumbai at harakali@bloomberg.net.

Last Updated: July 18, 2009 06:23 EDT