diff --git a/pkg/kapp/cmd/appgroup/deploy.go b/pkg/kapp/cmd/appgroup/deploy.go
index 8471e8770..a5bbc34d8 100644
--- a/pkg/kapp/cmd/appgroup/deploy.go
+++ b/pkg/kapp/cmd/appgroup/deploy.go
@@ -99,12 +99,17 @@ func (o *DeployOptions) Run() error {
 
 	// Delete apps that no longer are present in directories
 	for _, app := range existingAppsInGroup {
+		var found bool
 		for _, v := range updatedApps {
 			if app.Name() == v.Name {
-				err := o.deleteApp(app.Name())
-				if err != nil {
-					return err
-				}
+				found = true
+				break
+			}
+		}
+		if !found {
+			err := o.deleteApp(app.Name())
+			if err != nil {
+				return err
 			}
 		}
 	}
diff --git a/test/e2e/app_group_deploy_test.go b/test/e2e/app_group_deploy_test.go
new file mode 100644
index 000000000..6b28b5202
--- /dev/null
+++ b/test/e2e/app_group_deploy_test.go
@@ -0,0 +1,168 @@
+// Copyright 2024 The Carvel Authors.
+// SPDX-License-Identifier: Apache-2.0
+
+package e2e
+
+import (
+	"os"
+	"path"
+	"testing"
+
+	uitest "github.com/cppforlife/go-cli-ui/ui/test"
+	"github.com/stretchr/testify/require"
+	ctlres "github.com/vmware-tanzu/carvel-kapp/pkg/kapp/resources"
+)
+
+func TestAppGroupCreateUpdateDelete(t *testing.T) {
+	env := BuildEnv(t)
+	logger := Logger{}
+	kapp := Kapp{t, env.Namespace, env.KappBinaryPath, logger}
+	kubectl := Kubectl{t, env.Namespace, logger}
+
+	app1 := `
+---
+apiVersion: v1
+kind: Service
+metadata:
+  name: redis-primary
+spec:
+  ports:
+  - port: 6380
+    targetPort: 6380
+  selector:
+    app: redis
+    tier: backend
+`
+
+	app2 := `
+---
+apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: redis-config
+data:
+  key: value
+`
+
+	appTwoUpdated := `
+apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: redis-config
+data:
+  key: value2
+`
+	appGroupDir, err := os.MkdirTemp("", "")
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	appOneDir := "app-1"
+	appTwoDir := "app-2"
+	err = os.Mkdir(path.Join(appGroupDir, appOneDir), os.ModePerm)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	err = os.Mkdir(path.Join(appGroupDir, appTwoDir), os.ModePerm)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	err = os.WriteFile(path.Join(appGroupDir, appOneDir, "config.yml"), []byte(app1), os.ModePerm)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	err = os.WriteFile(path.Join(appGroupDir, appTwoDir, "config.yml"), []byte(app2), os.ModePerm)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	name := "test-create-update-delete-app-group"
+	cleanUp := func() {
+		kapp.Run([]string{"delete", "-a", name})
+	}
+
+	cleanUp()
+	defer cleanUp()
+	defer os.RemoveAll(appGroupDir)
+
+	logger.Section("deploy initial", func() {
+		kapp.RunWithOpts([]string{"app-group", "deploy", "-g", name, "--directory", appGroupDir}, RunOpts{IntoNs: true})
+
+		NewPresentClusterResource("service", "redis-primary", env.Namespace, kubectl)
+		NewPresentClusterResource("configmap", "redis-config", env.Namespace, kubectl)
+
+		listedApps := kapp.Run([]string{"ls", "--json"})
+
+		expectedAppsList := []map[string]string{
+			{
+				"last_change_age":        "<replaced>",
+				"last_change_successful": "true",
+				"name":                   name + "-" + appOneDir,
+				"namespaces":             env.Namespace,
+			},
+			{
+				"last_change_age":        "<replaced>",
+				"last_change_successful": "true",
+				"name":                   name + "-" + appTwoDir,
+				"namespaces":             env.Namespace,
+			},
+		}
+
+		resp := uitest.JSONUIFromBytes(t, []byte(listedApps))
+
+		require.Equalf(t, expectedAppsList, replaceLastChangeAge(resp.Tables[0].Rows), "Expected to match")
+	})
+
+	logger.Section("deploy app-group with an update", func() {
+		err = os.WriteFile(path.Join(appGroupDir, appTwoDir, "config.yml"), []byte(appTwoUpdated), os.ModePerm)
+		if err != nil {
+			t.Fatal(err)
+		}
+		kapp.RunWithOpts([]string{"app-group", "deploy", "-g", name, "--directory", appGroupDir}, RunOpts{IntoNs: true})
+
+		NewPresentClusterResource("service", "redis-primary", env.Namespace, kubectl)
+		config := NewPresentClusterResource("configmap", "redis-config", env.Namespace, kubectl)
+		val := config.RawPath(ctlres.NewPathFromStrings([]string{"data", "key"}))
+
+		require.Exactlyf(t, "value2", val, "Expected value to be updated")
+
+		listedApps := kapp.Run([]string{"ls", "--json"})
+
+		expectedAppsList := []map[string]string{
+			{
+				"last_change_age":        "<replaced>",
+				"last_change_successful": "true",
+				"name":                   name + "-" + appOneDir,
+				"namespaces":             env.Namespace,
+			},
+			{
+				"last_change_age":        "<replaced>",
+				"last_change_successful": "true",
+				"name":                   name + "-" + appTwoDir,
+				"namespaces":             env.Namespace,
+			},
+		}
+
+		resp := uitest.JSONUIFromBytes(t, []byte(listedApps))
+
+		require.Equalf(t, expectedAppsList, replaceLastChangeAge(resp.Tables[0].Rows), "Expected to match")
+	})
+
+	logger.Section("delete app-group", func() {
+		kapp.RunWithOpts([]string{"app-group", "delete", "-g", name}, RunOpts{})
+
+		NewMissingClusterResource(t, "service", "redis-primary", env.Namespace, kubectl)
+		NewMissingClusterResource(t, "configmap", "redis-config", env.Namespace, kubectl)
+
+		listedApps := kapp.Run([]string{"ls", "--json"})
+
+		expectedAppsList := []map[string]string{}
+
+		resp := uitest.JSONUIFromBytes(t, []byte(listedApps))
+
+		require.Equalf(t, expectedAppsList, replaceLastChangeAge(resp.Tables[0].Rows), "Expected to match")
+	})
+}