The increasing public debt may apply pressure for interest rate to increase and provide a signal in the economy for increased taxation in coming years. Public debt level and its composition, therefore, may explain for the changes in stock market where higher public debt is related with decreasing stock market prices as stock prices are based on present value of future cashflows. In this context, this study used monthly data for total public debt, domestic debt and external debt to study the relationship between these variables and stock market index movements for Pakistan. Findings from Johansen cointegration technique revealed that external debt has significant impact on the performance of Pakistan stock market index while public debt and domestic debt showed insignificant results. This relationship is robust with the presence of macroeconomic variables. This study further identified that discount rate, inflation rate and real effective exchange index have positive relationship with stock market index performance in Pakistan while T-bill rate has negative relationship. Moreover, corporate tax rate showed no relationship with stock market index performance. Further sectoral index analysis based on market weighted value revealed that energy sector index has positive relationship with domestic debt while textile sector has positive relationship with public debt and external debt. The cement sector index showed no relationship with public debt and its composition. This study recommends that external debt problem should be solved for better performance of stock market index and sectoral performance analysis should be done for Pakistan stock market in order to get better implementation of government policies. Supervisor:- Dr. Sajid Amin Javed Co-Supervisor:- Dr. Ahsan ul Haq Satti