Knowledge process outsourcing firm eClerx Services Ltd’s market capitalization had more than doubled year-on-year to over 3,600 crore just ahead of its annual results announcement on Tuesday. The stock gave up some of these gains on Wednesday, falling by 4.7% on the National Stock Exchange of India (NSE).

Net profit grew by an impressive 49% last year; but considering that the stock doubled, it does look like valuations had overshot. After all, earnings growth is expected to come crashing down this year thanks to the appreciation of the rupee.

In financial year 2013-14, earnings growth was largely driven by the depreciation in the rupee. While revenue grew at a healthy pace of 13.8% in dollar terms, margins expanded by 340 basis points owing to the sharp fall in the rupee. The company pointed out in a presentation to investors that expenses rose by 440 basis points as a percentage of sales last year, but that was more than offset by the gains from exchange rate fluctuation. One basis point is one-hundredth of a percentage point.

While stocks of a number of mid-tier IT companies have declined in the past three months owing to the strengthening of the domestic currency, in eClerx’s case there is an additional worry for investors. The company said on a call with analysts that revenue growth in 2014-15 is expected to be slightly slower. A reason is the ongoing consolidation among some of the company’s clients in the cable and wireless segment. The M&A activity in the sector is leading to delays in project starts. Also, revenues in the March quarter were below street estimates.

According to an analyst, the company gets about 74% of revenue from its top-five clients, and even if one of these clients falters, overall growth will be hit. To the company’s credit, however, revenues from other clients have grown at a faster pace in the past three years—in FY11, the top-five clients had accounted for 87% of revenues. Of course, a lot more needs to be done to reduce risk.

After the recent correction, eClerx trades at 13.5 times trailing earnings, which is a little ahead of where earnings growth might end up being in the next couple of years. The stock should correct some more, unless there are signs that growth is picking up or that the rupee will come to the company’s aid again. Analysts at Prabhudas Lilladher Pvt. Ltd said in a note to clients, “Revenue momentum in FY15 is expected to be weaker than FY14, while the drag on margin is likely to persist in the near term. We expect earnings growth to be in low-to-mid teens for FY15-16E, and retain our ‘reduce’ rating."