By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex and Nifty touched record highs for the second time this week as rate-sensitive stocks such as Axis Bank rose on hopes easing inflation would prompt the Reserve Bank of India (RBI) to cut interest rates earlier than expected.
Consumer inflation in October, due at 5:30 p.m. (1200 GMT), is expected to have eased to a record low of 5.80 percent, dragged by sharp drops in food and oil prices, according to a Reuters poll.
If the forecast is met, it would also make the RBI's inflation targets - 8 percent by January 2015 and 6 percent a year later - appear more attainable.
"The market is expecting inflation to come down very fast. So if the rates are not cut then certainly some momentum will be lost," said Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services Ltd.
The Sensex closed 0.35 percent up, after earlier rising as much as 0.78 percent to an all-time high of 28,126.48.
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The Nifty rose 0.25 percent after earlier gaining as much as 0.63 percent to a record high of 8,415.05.
Rate-sensitive stocks led, with Axis Bank rising 3.1 percent and ICICI Bank ending 1.3 percent higher.
Kotak Mahindra Bank rose 1.7 percent and HDFC Bank advanced 0.4 percent.
Among non-banking lenders, Mahindra and Mahindra Financial Services Ltd surged 7.5 percent, while LIC Housing Finance ended 4.1 percent higher.
Some auto stocks also rose. Two-wheeler manufacturers Bajaj Auto gained 2 percent, Hero MotoCorp ended 1.5 percent higher, while car maker Maruti Suzuki India gained 0.9 percent.
Tata Motors also advanced 2 percent on optimism ahead of its September-quarter earnings on Friday.
Tyre shares rose as investors expect falling crude oil and rubber price to boost companies' margins.
Apollo Tyres gained 3.2 percent, JK Tyre and Industries rose 3.1 percent and Ceat Ltd ended 6.6 percent higher.
Bayer CropScience ended up 10.2 percent after earlier marking its all-time high of 2,749 rupees after its September-quarter profit growth bucked the trend of weak earnings at rivals.
Among decliners, consumer goods stocks fell on worries that higher-than-expected good and services tax (GST) may restrict profit growth. Media reports on Wednesday said a government panel suggested GST rate of 27 percent.
Hindustan Unilever Ltd fell 0.3 percent and Marico Ltd lost 1.7 percent.
(Editing by Anand Basu)