The battered rupee hit another record low of 63.12 to the dollar on Monday, and although most analysts see further weakness in the coming months, they say the currency's woes are set to ease.
The move lower came despite attempts last week by India's central bank to shore up weakness in the rupee by tightening rules on how much its citizens and companies can invest abroad, and curbing gold imports.
But the measures only served to deepen the sense of crisis in India, even as Prime Minister Manmohan Singh on Saturday sought to allay concerns that the country was headed for a balance-of-payments crisis similar to the one experienced in 1991.
"The rupee could overshoot to 64 to 65 (to the dollar) in the next few months. That is realistic," said Nizim Idris, currency analyst at Macquarie bank. "But after that, it could come back if we do find stability and we do find India hitting the right notes in terms of adjusting the policies and opening up foreign direct investment some more."
Expectations of a scale back of the U.S. Federal Reserve's stimulus program have also led to sharp capital outflows for India and other emerging markets in recent months, with the rupee being hit particularly hard.
The currency has been among the world's worst performers this year, slumping around 12 percent against the dollar since tapering fears first took hold in late May.
Deteriorating economic troubles at home have added to the currency's woes. The government is struggling to reduce its current account deficit, which currently stands at 4.8 percent of gross domestic product (GDP), while attempts to push through structural reforms by relaxing restrictions on foreign direct investment have seen little progress.
The Reserve Bank of India's move last week was the latest in a string of measures designed to shore up weakness in the currency, including tightening liquidity by increasing short-term borrowing costs for banks to try and make it more expensive for investors to short the rupee.
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Jonathan Cavenagh, senior currency strategist at Westpac Institutional Bank, said he expects a further five percent weakness for the rupee in the next few months, but said its prospects should turn around in the fourth quarter of this year.
"The risks are that dollar-rupee will push higher from here. But once we get towards the 65 level, maybe we'll start to see some improvement from a trade balance perspective," he added, referring to a boost in exports that a weak rupee could provide.
"But that (the pick-up) will need to come through for a couple of months before we see sentiment (for the rupee) stabilize," he added.
(Read more: India's rupee hits record lows, here's what it means)
Analysts told CNBC that worries the rupee could revisit the rapid declines seen in 1991 were overblown. At the time, fears that India would default on its sovereign debt, led the rupee to weaken 70 percent from 1991 to 1993.
"In 1991 that was a big crisis, they didn't even have one month of foreign exchange reserves (to protect against that). We are not in the same league (now). We are looking for gradual currency weakness, not a spike up (in the dollar-rupee)," said Macquarie's Idris.
—By CNBC's Katie Holliday: Follow her on Twitter