Why this unloved market is due for a bounce

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A sharp sell-off in India's equity market, hit by increasingly bearish sentiment towards emerging markets generally, now provides an opportunity to snap up shares in Asia's third largest economy, some analysts say.

Indian stocks have plunged near 6 percent since Thursday, knocked down by a fall in the rupee to new record lows against the dollar and as foreign investors continue to ditch risky emerging-market assets amid fears of the U.S. Federal Reserve unwinding its monetary stimulus.

Many commentators said they would stay well away from from Indian assets right now, including Templeton Emerging Market Group's Mark Mobius, who said Indian stocks were "not quite yet" a buying opportunity.

(Read more: This market may be a 'slow moving train wreck')

But some, such as Steve Brice, chief investment strategist at Standard Chartered bank, said Indian equities look attractive from a technical standpoint.

"We like India. That's where you could make the strongest case for a bounce because we have weakened so far and so fast," said Brice.

India's benchmark stock market has fallen near 10 percent since late May to about 18,246 points and its rupee is the world's worst performing currency this year, touching fresh all-time lows against the dollar at 64.11 on Tuesday.

Brice said Indian stocks have traded in a range of between 18,000 and 20,500 in recent months and the fact that the index is now at the bottom of that range means it is at a "critical level" and could be in line for an uptick.

"Given the fact that we are oversold, any positive news that could come out from the macro or the policy side could see a short-term move higher... and if we get more negative news, a lot of it is in the price already," he said.

Recent policy moves by India's central bank have failed to shore up the rupee, further denting confidence in an economy already hurt by sluggish growth, high inflation and difficulties in pushing ahead with structural reforms.

(Read more: Distant bright spot for India's battered rupee?)

Brice said a broad improvement in the international environment, combined with the fact that Fed tapering is now believed to have been priced into markets, should reduce the risk of further heavy losses for Indian stocks.

No big changes

"The way I see it the fundamentals of India have not changed," said Keki Mistry, vice chairman and CEO of Indian financial services firm HDFC.

"We are still a very young country. What attracted foreigners to India 20 years ago is still the same...It will remain attractive in the medium to long term," he said, referring to low penetration rates for financial services firms and mortgages.

Mistry told CNBC on Tuesday that despite the rupee's sharp fall, sentiment was likely to turn around soon.

(Read more: Four reasons not to 'throw in the towel' for India)

"Sentiment will probably get better if we see some action from the government in terms of opening up some sectors to foreign investment.... coupled with some changes in policy by the Reserve Bank of India (RBI) where they step back on some of the measures they've introduced in the past month and they start easing liquidity in the system," he said.

On Tuesday, the RBI announced a series of policy changes designed to reverse liquidity tightening measures implemented over the past month.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie