KARACHI: The KSE-100 Index remained under pressure declining by 813 points or 1.8 percent week-on-week (WoW) to 45,259 points due to rout in banks, cements, and oil exploration & production companies (E&Ps). Trading activity remained dull where average traded volumes and average traded value fell by 37 percent WoW and 19 percent WoW to 155 million shares and $65 million. Banking sector declined by 1.9 percent during the week, partly due to the a circular issued by the State Bank of Pakistan (SBP), mandating strategically important banks to maintain Higher Loss Absorbency (HLA) capital surcharge in the form of additional Common Equity Tier 1 (CET 1). An analyst at Elixir Securities said, “We expect Habib Bank (HBL), United Bank (UBL), Meezan Bank (MEBL) and National Bank (NBP) to be classified under Bucket C, requiring them to increase their Capital Adequacy Ratio (CAR) by 2 percent (over and above the current requirement) by the end of 2018”. “The upcoming week is packed with a number of major result announcements. Investors would likely remain focused on earnings. Barring any stock specific surprises, the broader sentiments will be tied to expectations on Federal Budget scheduled to be announced on April 27, 2018”, said the analyst. Select mid-tier banks are likely to be categorized under Bucket A and B – requiring additional CAR of 1-1.5%. While we believe Tier-1 perpetual debt issuance can help buffer up the banks’ CAR, the new regulatory requirement has raised risks on dividend payout sustainability for select banks. UBL and HBL were down 4.3 percent WoW and 5.2 percent WoW owing to reported foreign selling and former’s dismal first quarter 2018 financial result which was marred by high provisioning and one-off pension expense. Cements were down 4.2 percent WoW due to pricing development last week where average prices in the South came down by Rs 15/bag and rumors of price cut in North over this week; however our discussions with companies’ management negate the rumors of price declines in North. E&P sector came down by 3.6 percent WoW mainly due to foreign selling in Oil & Gas Development Company (OGDC) of $ 50 million; the stock fell 6.6 percent WoW after the block sale was conducted at over 6 percent discount to last Friday’s closing. Published in Daily Times, April 22nd 2018.