Hi, Whenever I need to use my coaxial indicator, I remove the chuck, put in an MT3 collet of the correct size for the indicator, then install the indicator straight into the spindle collet and not in the chuck, and then centre everything up. Once done, remove the indicator, remove the collet and replace the chuck. I find unless you have a coaxial indicator with a humungous indicating lever, that the length of the indicator in the spindle, is around the same as the length of the chuck plus cutter so there is no need (or less need depending on how much Z you got) to lose Z alignment when switching between indicator and chuck. I use a standard blake coaxial indicator and a pretty standard Clarkson or ER32 collet chuck in an MT3 spindle nose.
This obviously works for my setup, but will depend on your coaxial indicator type and spindle nose as to whether it will work for you. Takes a bit longer, and is a bit fiddly, but if you dont have the clearance and you happen to have some spindle collets, then you may already have the solution infront of you.
Graham