Orientation spindle for toolchange - gearbox

Is this a home-built machine, or a conversion of a commercial machine?
If it is the latter, then presumably the design is capable of working.

One way to align accurately might be to attempt to align to zero encoder-counts with a PID, after setting the encoder-index flag.

Initially the spindle will be many turns away from zero, so will spin fairly fast. On the first pass past the prox the encoder counts will zero, and the PID output will reduce the speed, and should finally settle to fairly exactly where the prox triggered.

This assumes that the spindle turns predominantly in one direction, so that the pid causes the spindle to approach the prox in the opposite direction, otherwise there is a chance of a prox-width error.

Forgot to say, you should use the prox sensor output as the encoder Z channel. Not the index on the encoder itself.

And you should limit the PID maxoutput to a sensible speed, too.