The Indian rupee has stabilized around 60 per dollar after hitting a record low of nearly 69 against the greenback in August 2013. And given the economic backdrop - hopes of faster growth, structural reforms and optimistic balance of payments outlook - investors should expect the rupee to keep appreciating.

According to Morgan Stanley, investments in India are likely to treble from $600 billion to $1.9 trillion between 2014-24; foreign direct investment (FDI) is likely to rise to an average of 2.5 per cent of GDP by 2024 from 1.5 per cent of GDP now, and the current account deficit may remain at about 2.5 per cent of GDP over the next decade.

All these factors are likely to support the rupee over the next decade. Still, the investment bank expects the rupee to depreciate by nearly 30 per cent to 75-85 per dollar by 2024.

The biggest pressure on the rupee might come from the Reserve Bank's monetary management. According to Morgan Stanley, the RBI will remain a buyer of dollars over the next few years to safeguard the rupee from external shocks such as a sudden spike in crude prices or a rise in interest rates in the US, which may lead to flight of capital from the country. This will slow any aggressive rupee appreciation on the back of capital inflows in the country.

"India's import cover deteriorated significantly following the global financial crisis, and the RBI will need gradually to build up $100-150 billion of reserves to take the import cover back over 12 times... Similarly, India's external coverage ratio at 2.26 times is also below the average of 4 times for EM economies, making a strong case for building forex reserves," say Chetan Ahya and Ridham Desai of Morgan Stanley.

High inflation will be the other big challenge for the rupee as it impacts the purchasing power of the rupee relative to other currencies. Countries with higher inflation tend to witness depreciation in their currency in relation to the currencies of their trading partners.

"Assuming that US CPI inflation remains close to its inflation target of 2 per cent and India follows a disinflationary path over the next few years, the inflation differential against the US would still be equivalent to a 30-35 per cent decline in the purchasing power parity fair value for rupee, taking our nominal fair value estimate 10 years out to a 75-85 range," the investment bank said.