The relationship between macroeconomic variables and stock prices has been well documented in literature over the last two decades. It is argued that macroeconomic factors affect the stock prices. This study investigates the relations of selected macroeconomic variables with BSE stock prices in India. The study uses the monthly data from April 1994 to June 2010 on the basis of availability of data. The study uses macroeconomic variables like Index of Industrial Production (IIP), Interest Rate (IR), Wholesale Price Index (WPI), Exchange Rate (ER) and BSE stock prices. 195 observations are used for each variable to investigate the relationship between these variables. The study performs the Unit Root Tests like Augmented-Dickey Fuller test and Phillip-Perron test to test stationary of time series data. Johansen Cointegration test and Vector Error Correction Method (VECM) are used to test the relationship between stock prices and macroeconomic variables. It is found that industrial output has positive and significant effect on the BSE Sensex prices. On the other hand inflation rate and exchange rate have negative significant effect on Sensex prices.