This has come up before on the mailing list, but I was wondering if LMTX
has a more elegant solution than using a transparent/invisible capture of
the drop-cap.

Consider:

\setupinitial[n=2, style=\tfd,
location=text]\setuphead[chapter][after={\placeinitial}]
\starttext
  \chapter

  Hello world!

  \input ward\stoptext

The output shows that the second paragraph is not indented beyond the
bounding box of the drop-cap, resulting in an overlap. This isn't a problem
when the first paragraph spans two or more lines.

Any ideas for how to resolve this without changing the content?

Thank you!