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 Small-cap stocks are under as the index fell more than 1 per cent on Monday amid concerns over valuations.

BSE Small Cap Index is down 1.2 per cent while the benchmark Sensex is down only 0.34 per cent, down by 255 points.

Among the constituents, JTL Industries is down 15 per cent, BCL Industries is down 12 per cent, Sigachi Industries is down 12 per cent, Tata Chemicals is down 9 per cent, Neuland Labs is down 9 per cent, JM Financial is down 8 per cent, Arvind Ltd. is down 7 per cent, IIFL Finance is down 5 per cent.

The dominant trend in the market in the near-term is likely to be the underperformance of the broader market, particularly the small-cap space, says V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Since restraint imposed by some mutual funds by stopping lump sum investment into their small-cap schemes has failed to stem the flow of funds into the over-valued small-cap segment, SEBI has stepped in with regulatory action asking the mutual funds to do stress tests in their mid and small-cap schemes, he said.

More follow up actions are likely from the regulator to prevent a bubble formation in the broader market and its inevitable burst, he said.

Since the market is scaling new highs consistently, the undertone of the market remains bullish and, therefore, investors should remain invested. Large-caps are likely to witness buying on dips while the broader market will face headwinds, he added.