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Tata Consultancy expects to fare better in next two quarters after sales hiccup

MUMBAI (Reuters) - Indian IT outsourcing group Tata Consultancy Services Ltd (TCS) said its next two quarters will be better after clients held back on spending in the three months to September.

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The nation’s biggest software services company reported an 8.4 percent rise in second-quarter profit amid lacklustre revenue growth as its financial sector clients delayed discretionary spending due to an uncertain business climate.

Net profit in the three months ended Sept. 30 rose to 65.86 billion rupees ($989 million), up from 60.73 billion rupees in the same period last year and ahead of analysts’ forecasts of around 62.93 billion rupees.

Revenue for the quarter increased by 7.8 percent on the same period last year to 292.84 billion rupees, a rise of just 0.1 percent on the previous three months. It posted a rise of 1 percent sequential revenues on a constant currency basis.

The company’s revenue growth was the lowest sequential revenue growth in the company’s reporting history in the second quarter, a Emkay Global report pointed out.

TCS first warned in September that its financial sector clients were holding back on discretionary spending.

TCS Chief Executive N. Chandrasekaran said the second quarter was “unusual” for the company, but that he was optimistic.

“..I am tempted to say that Q3 and Q4 this year will be better than the usual years,” he said during a news conference on Thursday.

He gave no reason, but said there had been no order cancellations and technology spending continued. He also said the company had not seen much impact from the forthcoming US elections.

The United States is the biggest market for India’s $150 billion software services outsourcing industry, followed by Europe.

The report said the IT sector continued to face structural and cyclical changes resulting in a very tough financial year for the industry as a whole.

The company has said it will push into digital services such as big data, cloud computing, and artificial intelligence among other things, as it seeks to expand beyond its traditional business and boost revenues.

During the September quarter, TCS said it added one client contributing annual revenues of more than $50 million, and six in the $20 million-plus band. It had gross employee additions of 22,665 during the quarter, taking its total to 371,519.

Ahead of the results shares in TCS, valued at nearly $70 billion, fell 2.2 percent in a Mumbai market that closed 1.6 percent lower. The company is India’s biggest by market capitalisation.

TCS’ closest rival Infosys Ltd is due to report quarterly results on Friday.

($1 = 66.5919 Indian rupees)

Reporting by Sankalp Phartiyal; Editing by Keith Weir, Greg Mahlich, Susan Thomas