Abstract: Macroeconomic variables like Economic output, Unemployment and Inflation etc. play a vital role in the economic performance of a country. For the past three decades, evidence of key macroeconomic variables helping predict the time series of stock returns has accumulated in direct contradiction to the conclusions drawn by the Efficient Market Theory. This paper studied the pattern of Consumer Price Index (CPI), Wholesale Price Index (WPI), Gross Domestic Product (GDP), Gross National Income (GNI) and rate of interest in India and Sri Lanka. Monthly data from 2002 onwards to 2009 has been used in case of all the variables. The econometrics tools i.e., unit root test, Granger causality test, cointegration test, vector auto regression and variance decomposition analysis have been used for the analysis purpose. All the tools don’t lead us to any common result. Granger model and VAR model indicates that CPI, WPI and exchange rate does not have any influence on each other in the case of both of the countries but the Variance decomposition model shows visible impact of macroeconomic variables on each other in some of the cases in Indian and Sri Lankan data. The present study finds that the macro-economic variables i.e., exchange rates, bank rates, WPI, CPI, GNI and balance of payments play a pivotal role in determining the Gross Domestic Product (GDP) in India and Sri Lanka.