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India's small- and mid-cap indexes logged their worst session in more than two years on Wednesday, ahead of the results of a stress test of the country's mutual funds conducted by the markets regulator, which has warned of "froth" in these stocks.

The selling widened to the blue-chip indexes, with the NSE Nifty 50 and BSE Sensex logging their worst session in nearly two months and retreating from the record highs they hit on March 11.

The Nifty 50 lost 1.51% to 21,997.70, closing below the 22,000 mark for the first time in March. The Sensex settled 1.23% lower at 72,761.89.

The broader, domestically focussed small- and mid-caps dropped an even steeper 5.28% and 4.40%, respectively. They have now rowed back 14.4% and 7.7%, respectively, from the record highs hit on Feb. 8.

"Small- and mid-caps faced a bumpy ride due to (the regulatory) crackdown on over-speculation, sparking increased bearishness in the segments," said Rupak De, a senior analyst at LKP Securities.

Worried about large inflows into small- and mid-cap funds, India's market regulator has asked mutual funds to conduct stress tests and disclose results by Friday.

Twelve of the 13 major sectors and 43 of the Nifty 50 stocks declined.

"This is a case of classic profit taking happening at near record high levels for benchmarks," Kranthi Bathini, equity strategist at WealthMills Securities, said.

"The overheated segments like realty, state-owned banks and energy stocks are seeing the most selling pressure."

State-owned banks, energy, realty and metals lost between 4% and 6%.

Among the very few bright spots, Nifty 50-component ITC jumped 4.5% after British American Tobacco sold a stake worth about $2 billion in the company, removing a major overhang.