The rupee is now less prone to an emerging market currency sell-off due to a narrowing current account deficit and an improved outlook for the economy, a Reuters poll of foreign exchange strategists showed on Thursday.
Still, it is not expected to gain much strength and will likely trade around 63.00 rupees to the US dollar by the end of April before rising slightly to 62.30 in a year, according to a poll of 29 currency strategists conducted this week.
Those predictions are not far from Thursday's spot rate of 62.40 and are indicative of the uphill climb policymakers face to help the rupee claw back some of last year's losses - when it fell 11 percent against the dollar and hit record lows.
Last month, in a repeat of mid-2013, investors battered emerging market currencies from Turkey to South Africa on concerns the US Federal Reserve will continue to gradually unwind its stimulus programme and amid fears of slowing global growth.
"The Fed's taper was a convenient excuse to sell off. It wasn't the catalytic trigger," said Vishnu Varathan, economist at Mizuho Corporate Bank in Singapore.
Varathan refers to falling U.S. treasury yields, arguing that if concerns about the Fed reducing its $75 billion a month stimulus was what caused the emerging market sell off in January, U.S. bond yields should have gone up like last summer.
The benchmark 10 year U.S. treasury yield dipped around 30 basis points in the second half of last month, a stark contrast to its 80 percent rise between May and December 2013.
A Reuters poll on Wednesday showed the Turkish lira and South African rand, among the biggest losers in last month's rout, were the most vulnerable in the event markets started dumping emerging market currencies again.
The rupee, however, managed to emerge largely unscathed due to measures taken to curb the import of gold, a key item bloating India's current account, which narrowed to $5.2 billion, or 1.2 percent of GDP, in the quarter to September. That is the lowest in over four years.
"The big question is whether the clamp down in gold imports, which helped reduce the current account deficit dramatically, can be sustained for two more quarters," said Varathan.
"If it can, then the rupee could get bumped up this year especially if a non-fractured government assumes power after the elections."
India goes to elections by May and the outcome is seen by analysts as a key factor that