New Delhi, Aug. 31 -- If you believe that small-cap or mid-cap stocks deliver faster earnings growth and higher return potential than large caps, there is one important factor you should consider.

How much of that earnings growth is broad-based, and how much comes from a few outliers?

According to a DSP Mutual Fund study, small- and mid-cap companies have delivered much faster profit growth than large caps over the full cycle from FY17 to Q1 FY27.

Aggregate profit after tax (PAT) grew at a compound annual growth rate (CAGR) of 14% for large caps, 21.2% for mid caps and 36.8% for small caps.

But the picture changes sharply when the best and worst 2% of stocks by aggregate PAT are excluded. Small-cap PAT CAGR falls to 24.8%, while mid-c...