The rupee will continue to claw back recent losses over the next 12 months after the government unveiled a slew of reforms to repair the country's finances and boost flagging growth, a Reuters poll showed.
Still, its rise will likely be gradual, around 1 percent at best, and analysts were sceptical about predicting any solid recovery unless the reforms stick.
The poll of 28 currency strategists and economists, conducted between Oct 1-8, showed the rupee was expected to trade in a range around current levels of 52.42 between now and March, before strengthening to 51.70 against the U.S. dollar in a year's time.
Compared to a similar poll in June, those forecasts signal some return in optimism for the currency that was ravaged in 2011 and early 2012, depreciating by around 20 percent.
The rupee hit a record low in late June this year. While it is has since recouped all of its 2012 losses, it is still down about 6 percent from this time last year.
"Reforms have only improved sentiment, and since they haven't been implemented yet, actual inflows into the economy have not started," said Madan Sabnavis, economist at CARE ratings in Mumbai.
India's government last month announced long-awaited reforms as part of a package of measures aimed at reducing its deficit, reviving growth and staving off a ratings cut to junk status.
It opened up India's supermarket sector to foreign chains and allowed more overseas investment in airlines and broadcasters in addition to increasing diesel prices.
Still, analysts have warned that the government, already weakened by a string of scandals, will inevitably face a political backlash over the reforms which could make it reluctant to take further steps to tackle a gaping fiscal hole.
Central banks in the euro zone and United States recently announced further steps to ease strains on their slowing economies, reviving investors' appetite for riskier assets.
While the U.S. Federal Reserve said last month it would buy housing bonds worth $40 billion every month until the jobs market improved, the European Central Bank said it would buy sovereign bonds of peripheral euro zone countries to help depress yields and contain the region's festering debt crisis.
The resulting influx of foreign capital into emerging markets coupled with domestic reforms propelled the rupee about 5 percent higher in September. Net foreign investor inflows last month stood at over $3.5 billion.
But analysts were cautious about whether the pace of reforms would continue.
The government's next focus is to increase foreign investment in sectors such as insurance, pension and banking, apart from further reducing its subsidy bill.
"As we go into next year, there are local and national elections and that will slow the pace of reforms. We feel that the focus may shift from the economy to the elections," said Perry Kojodjojo, foreign exchange strategist at HSBC.
"Although the government has increased diesel and cooking gas prices, the risk is that if oil prices continue to rise, the reduction of the current account deficit still becomes difficult."
India's current account deficit stood at $16.55 billion for the quarter April-June, narrowing from the $21.76 record deficit in the previous quarter. But it still remains much higher than many of its Asian peers.
With its import bill unlikely to reduce substantially as a result of high oil prices, the government has much to do to ensure foreign capital finds its way onto Indian shores.
Stubbornly high inflation has also tied the Reserve Bank of India's hands and despite economic growth slipping in recent months, it has continued to maintain a hawkish stance and steered clear of cutting interest rates.
But with the government finally waking up to stimulate growth, the RBI is expected to resume cutting the repo rate if inflation shows signs of cooling.
Long positions in the rupee climbed to their largest level since early February, a survey of 11 analysts showed last month.