Mid-cap and small-cap stocks, which have been outperforming the benchmark indices this year, on Tuesday ended with cuts of up to 4 per cent, in an indication that correction may have begun in this space amid valuation concerns.

While the BSE small-cap index lost 4.02 per cent, the mid-cap gauge lost 2.96 per cent. So far this calendar year, the mid-cap index (as on September 11) has shot up over 52 per cent, the small-cap index has risen by more than 33 per cent. During this period, the 30-share Sensex has shown gains of over 10 per cent.

Among the mid-cap index, Bhel was the top loser as it fell 10.08 per cent to settle at Rs 125.75 on the BSE. It was followed by Tube Investments, SJVN, and REC, which declined up to 9 per cent. On the BSE small-cap index, Texmaco Rail declined the most as it fell 14.75 per cent.

“The level of pessimism has risen leading to a precautionary approach to book profits on a notion that the valuation has extended beyond the rationale. The correction is happening on mid-caps, while large-caps are maintaining their strength. This trend can prevail in the short-term, but the end-game is on the rise of the domestic economy, surprising upside in corporate earnings, and change in domestic investment patterns, which may continue on a long-term basis,” said Vinod Nair, head of research at Geojit Financial Services.