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Vaccination drive along with earnings growth will determine India's stock markets' trajectory in FY22, said Motilal Oswal Financial Services Ltd. (MOFSL).

"As we step into FY22, two things will drive the markets from hereon, in our view. Given the recent resurgence in Covid-19 cases, the pace of vaccination will assume crucial importance," MOFSL said in a report.

"Secondly, the expectations for FY22 earnings are running high at more than 30 per cent growth in Nifty FY22E EPS. Given the rich valuations, any misses on FY22 earnings delivery may act as dampener."

At present, the market capitalisation-to-GDP is at a new year-end high of 105 per cent.

In terms of FY21, the Nifty ended last fiscal with a stellar 71 per cent returns.

"The returns look stellar due to the low base of FY20 when markets fell 26 per cent."

"The market delivered positive returns in all four quarters of FY21. FII flows in equities in FY21 were the highest ever at $37.6b while DII equity flows saw outflows after five consecutive years of inflows."

Besides, the report cited that all sectors delivered positive returns in FY21.

"Top gainers in the sectoral space were Metals, Autos, Technology, Real Estate and Private Banks while Consumer underperformed,"

"The theme of FY21 was high beta, cyclicals and value. Quality and defensive themes, the flavor of the past few years, took a breather."

Furthermore, the report pointed out that the market breadth was positive in FY21, with 49 Nifty stocks closing higher.

"Coal India was the only stock in Nifty which ended lower. Top performers were Tata Motors, Hindalco Industries, JSW Steel, Grasim Industries and Tata Steel."

"The Top-5 performers belonged to Cyclical space while the bottom five are dominated by Defensives."

In addition, it said that India recorded the highest ever FII inflows of $37.6 billion which was greater than the cumulative inflows of the last six years.

"DIIs recorded the first outflows of USD 18.4b after five years of inflows."