Floods, cyclones and heatwaves are no longer viewed as humanitarian crises; they also have significant financial implications by affecting borrowers’ ability to repay loans, increasing potential liabilities of insurers and influencing how investors assess and price financial risks. Whether financial markets actually respond to this physical climate risk remains an open question, particularly in emerging economies like India, where climate exposure is high but market-based evidence is scarce. This paper tests whether physical climate risk is reflected in the equity returns of India’s financial services sector, using a new monthly Climate Risk Index (CRI) constructed from disaster data spanning February 2014 to December 2024. Using multiple methods, average effect regression, distribution analysis, structural break test and causality tests, we find no statistically significant relationship between physical climate risk and financial returns. A concentrated effect at the lower-middle quantile of the return distribution does not survive exclusion of a single extreme observation, and a structural break detected around India’s 2022 climate-disclosure reforms is not specific to the climate-risk relationship itself. Financial-sector returns do, however, predict subsequent movements in the Climate Risk Index, suggesting shared exposure to broader economic conditions rather than a reverse-causal effect. These findings do not mean climate risk is unpriced in India’s financial system. They suggest instead that the current aggregate, monthly-level measurement may not be capturing where that pricing occurs. The study contributes a novel India-specific Climate Risk Index and a multi-method framework for testing climate-risk pricing, offering a tool that regulators such as the RBI and SEBI can use to assess whether disclosure mandates are translating into actual market pricing.