Jecheche Petros (2011) examined “the effect of stock exchange oneconomic growth”. The objective ofhis research is to find the relationship between economic growth and itsdeterminants with special focus on the stock market development in Zimbabweduring the period from 1991 to 2007 . The key findings of this research arethat there is a positive relationship between efficient stock market andeconomic growth both in short run and long run while financial instability andinflation have negative effect, and human capital and foreign direct investmenthave positive effect on growth. Researcher concludes that public and privateinvestment as complimentary and emphasizes on the role of government to improvethe financial sector efficiency of the economy. P.K.Mishra et.
al.(2010) investigated the impact of capitalefficiency on economic growth in India by using the time series data on stockmarket index, market capitalization from the period covering the first quarterof 1991 to first quarter of 2010. The findings resulted into the fact thatcapital market in India has the potential to contribute to the economic growthof the country. The inference drawn from the research was that there exists alinkage between capital market efficiency and economic growth in India and thelink is established through high rate of market capitalization and total marketturnover. Pallavi Sethi (2013) suggested few of the innovative products that can be introduced inthe capital market which can lead to optimum utilization of resources andconcluded that innovation is the call of the Indian capital market but needs tobe applied cautiously.
I.INTRODUCTION The financial systemof a country is often regarded as its backbone without which a country cannotstand especially a country like India, which is regarded as one of the fastestgrowing and developing economies of the world. Financial system of a country isa combination of Financial institutions, Financial market, Financialinstruments and Financial services. In the aftermath of 2008 financial crisiswhich shook the entire world, the Indian capital market was also affected, it becameincompetent to fulfill the needs the investors. The government took variousinitiatives to uplift the capital market one of those is financial innovationwhich is not a new term it has a long successful history with proven benefits.It is an act of creating new financial instruments and then spreading it widelynew financial technologies into the markets. Financial Innovation has oftenbeen regarded as a continuous and integral part in the growth of the capitalmarkets. Capital market being part of changing business dimensions across theworld are the first one to unleash the creativity leading to innovation.
Thecapital market is a place where long term funds can be raised by both governmentand companies in order to trade securities in the bond and stock market. Thefinancial innovation has completely transformed the capital market withintroduction of new securities. In the modern economy the capital market isbeing considered as an efficient financial intermediary and primary determinantof the economic growth of the country. GDP refersto the final value of goods and services produced within the geographic boundaries of a country during aspecified period of time, normally a year. The financial market functions in the directionof providing strength to the economy by making finance available at the rightplace. Inflation refers to asituation of increase in the general price level over a period of time.
It is apart of business cycles. Every country experiences it during the process of itsgrowth and development. The declining trend of inflation in India is a clearindication that the capital market is efficient enough to restore theconfidence of investors to make investment.