Shares of Mindtree Ltd have lost 14% since its second quarter (Q2) earnings announcement in October. During the same time, the Nifty IT index has declined only 2%. Revenue growth missed Street estimates in the September quarter, and management commentary had turned cautious too.

The December quarter (Q3) results should bring some stability, at least as far as the financial performance goes. Revenue in constant currency increased 2.4% on a sequential basis, slightly ahead of estimates. Profit margins expanded 50 basis points. Encouragingly, dependency on the top clients, a bugbear for investors, moderated a bit. Revenue contribution of the top 10 clients moderated from 44.8% in Q2 to 44.1%, implying some diversification of the revenue base.

One basis point is one-hundredth of a percentage point.

The $1 million client bucket has seen five additions and deal wins have picked up compared to a year ago. Deal pipeline is strong. Management expects the growth in the current quarter to be slightly better than Q3, aided by incremental recovery in the banking, financial services and insurance (BFSI) vertical. Margins are expected to be stable, with the company planning to reinvest efficiency gains emanating from the higher revenue.

The stable commentary should aid the stock. That said, much depends on the recovery in the BFSI vertical.

From 24.8% in the year ago and 22.4% in Q2, the contribution of the BFSI vertical to revenues dropped to 21.7% last quarter.

To be sure, the segment continues to see good deal momentum. But the ramp-down (reduction in revenue contribution) of a large client lowered the segment’s contribution. There is no clarity yet when this segment will pick up pace.

Outlook for the rest of the three business verticals—media, retail and manufacturing, and travel and hospitality—is encouraging with the firm seeing strong momentum in the travel segment.

So Mindtree may as well end the current fiscal year on a positive note, with double-digit year-on-year growth. How the momentum builds into the next fiscal year remains a question mark and this will play a key role in the stock trajectory.

Of course, another trigger for the stock is the impending stake sale by a big shareholder. Whether the stake sale entails an open offer and change in control will be a key factor to look out for.

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