This study investigates the impact of interest rates on stock market returns, focusing on the Karachi Stock Exchange (KSE) from 1997 to 2010. The analysis incorporates macroeconomic variables such as exchange rates, the industrial production index, and behavioural factors like investor sentiment. Descriptive statistics and correlation analysis provide foundational insights into the dataset, while unit root and stationarity tests ensure robust econometric modelling. The revised regression approach, utilizing differenced data, confirms a significant negative relationship between interest rates and stock market returns. The findings align with global trends but underscore the unique characteristics of emerging markets, offering valuable implications for policymakers and investors.