Companies with a relatively small market capitalisation have outperformed their larger peers over the past one year. According to a study by FE Research Bureau, companies with market capital capitalisation of between Rs 150 crore and Rs 1,600 crore have outperformed their larger counterparts, namely those with market capitalisation of over Rs 16,000 crore.

While the BSE small cap index gave a return of 112.4%, the same for BSE mid cap was 101.9%. The Sensex gave a return of 65.9% over the period. Typically, small cap stocks, because they are more illiquid, tend to lose more value when the stock markets crash.

Following the global financial crisis, which broke out in September last year, many of the small cap counters were battered. However, they have rebounded smartly in a bull market.

It is also a fact that many small cap companies have reported fairly good financial results over the past few quarters, as are being reflected in the better economic growth.

A study of 450 small cap companies (excluding banks and NBFCs), whose September quarter results are available with FE Research Bureau, shows that they posted a 20.2% rise in operating profits over the corresponding period of the previous year. That is despite a mere 0.8% increase in sales. The operating profit margin (OPM) for these companies increased by about 200 basis points to 13.13%.

The reason for the better margins was a drop in the raw materials bill given that prices of key inputs such as coal, steel and aluminium have come down sharply.

Among companies that gave strong returns were Adhunik Metal, Amara Raja Batteries, Bajaj Electricals, Banco Products, Century Enka, Chemplast Sanmar, Dhampur Sugar and Everready Industries.

Ritin Shah, analyst, CNI Research, said: ?Last year, when the BSE Sensex fell from 21,000 levels to levels of 8,000, large cap stocks lost more value with the erosion being almost 90 to 95%. Therefore, from a lower base, the recovery in small cap looks more impressive than that of large cap and mid cap stocks.?

It is not that mid cap firms haven?t turned in good numbers. The FE RB study shows that for a sample of nearly 200 companies, the operating profit rose 18.4% in the September quarter compared to the corresponding period of the previous year. That was despite the top line coming off by 4.2%. The OPM for this sample stood at nearly 15%, an increase of 300 basis points.